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#1
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Airline Biz Crisis: Not Difficult To Predict
In the mid-late 1990s, I saw in the local newspaper that some senior
Delta captains were being paid approximately up to $500,000 a year, and that the Delta Board of Directors pays the new CEO Leo Mullin millions (how many?) and the other top management gets pretty nice pay too, I perceived that with the de-regulated discounting of a ValueJet, Southwest, etal, that our Atlanta-based largest employer was actually skating on thin market insecure ice. And this was when Delta was supposedly considered solvent/profit-making, which I never believed since I'm old enough to recall Eastern and the others. Plus I did not enjoy/get them thar free/reduced passes & fares, and thus frankly felt... why should I patronize them. Obviously, price trumps, and the Walmart airlines thus have prevailed. We've actually "driven to Birmingham & Greenville" airports so as not to have to pay that couple of hundred bucks more. As it was predicted upon de-regulation circa late 1970s, things chaotically became...what they are, though I won't eliminate 9/11 & fuel prices as precipitating the decline of the greatly respected brand name. C'est la vie, c'est la morte. http://www.breitbart.com/news/2005/09/22/D8CPAVCG1.html |
#2
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Robert Cohen wrote: In the mid-late 1990s, I saw in the local newspaper that some senior Delta captains were being paid approximately up to $500,000 a year, and that the Delta Board of Directors pays the new CEO Leo Mullin millions (how many?) and the other top management gets pretty nice pay too, But those are NOT the reasons for the problems in the airline industry! CEOs of thriving (and some non-thriving) companies make tens of Millions a year, plus bonus, plus stock options, etc., etc. Stock Fund Managers make millions of bucks a year for doing something that a monkey throwing darts can do BETTER -- the mutual funds as a group ALWAYS do worse than the DOW and the SP500, as a result of frivolous trading for window dressing every Quarter, not to mention lining their own pockets. Then you have professional Athletes demanding millions of bucks a year just to play ball. It's called the FREE MARKET. Everyone is entitled to earn what the market will bear. That's why Delta was NOT losing big bucks every quarter before 9/11, and that's NOT the reason other thrift airlines went out of business. It's mostly Management. That's why Walmart is thriving and K-mart is going out of business. I perceived that with the de-regulated discounting of a ValueJet, Southwest, etal, that our Atlanta-based largest employer was actually skating on thin market insecure ice. And this was when Delta was supposedly considered solvent/profit-making, which I never believed since I'm old enough to recall Eastern and the others. Whether you believed it or not, Delta and other airlines WERE making profits. Eastern went belly up for reasons of incompetent Management! Plus I did not enjoy/get them thar free/reduced passes & fares, and thus frankly felt... why should I patronize them. Some of those are no different from their spending millions of bucks on ADVERTISING! Just read the nesgroups and see while ADs are not allowed, you have plenty of legit customer praises and legit complaints (not those by Paul Tauger and other whiners) about airlines. They are much more beneficial to the airlines than paying big bucks on TV to "Fly the Friendly Skiies ..." -- I am sure you remember those. It's the same damned sky ALL airlines fly. :-) That's why you DON'T see those silly ads any more. Obviously, price trumps, and the Walmart airlines thus have prevailed. We've actually "driven to Birmingham & Greenville" airports so as not to have to pay that couple of hundred bucks more. From Atlanta? I lived in your area for decades. I used to live 30 miles from GSP (Greenville/Spartanburg SC), and about 120 miles from the ATL airport. I don't recall many occasions in which I flew out of GSP instead of ATL. In fact, I live in a city about the size of Greenville that has its own airport, which services AA, Delta, and several other airlines, but almost without exception, I fly out of Atlanta (and NOT flying Delta), but CO, which does not have a hub there. As it was predicted upon de-regulation circa late 1970s, things chaotically became...what they are, That's because the "deregulation" is only "partial", and the airlines are STILL a very much REGULATED industry, by Uncle Sam. And THAT's part of the trouble. The airline companies are NOT free to do what a truly FREE MARKET would allow them to do, except some minor, fly-by-night airlines whose cost-saving gimmicks soon ran out of the kind of paupers who would support them. though I won't eliminate 9/11 & fuel prices as precipitating the decline of the greatly respected brand name. C'est la vie, c'est la morte. http://www.breitbart.com/news/2005/09/22/D8CPAVCG1.html The 9/11 has proven the success of Bin Laden against the USA. The twin towers were only the symbols they destroyed. They devastated the airline industry, the cruise industry, and many other industries from the fall out. Worst of all, Bin Laden tricked Bush into trying to put the blame on Saddam because to this day the Bush administration has not had ANY success dealing with the ongoing terrorism claimed by those Terrorists. Instead of Bush wasted BILLIONS and BILLIONS of American dollars (and worse American LIVES) on HIS unilateral declaration of war on Iraq, and more Americans died there AFTER Bush declared that the war was "won" than before. Bush has had his feet so deep in doo doo there that it'll be YEARS before the Americans, and the USA, will recover from the HUNDREDS of Billions of dollars Bush pumped into the National Debt account. Don't blame it on those things you blamed on Delta. Blame it on the result of 9/11, and Bush;s MANAGEMENT of the USA. The economy of the USA suffered as a result, which brought ALL the airlines down to their collective knees. They were just some of the victims of what the fishing industry's unintended kills when the shrimp catch by dragnet kills hundred pounds of unedible marine life for every 10 pounds of shrmpt caught. The DOW and the NASDAQ composites are still only at a small fraction of what they were before 9/11. If we are going to blame the airline industry problems on anyone, let's at least put things in their proper perspectives. -- Bob. |
#3
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Airline of Greenville was AIR SOUTH (to/from NYC, I think) prior to
their going bye, bye, and I think they were S.C. State start-up $upplemented, weren't they? Airline of Birmingham is Southwest, which still goes to/from Seattle a coupla bucks (how many, $200?) cheaper than Delta of Hartsfield-Jackson PLUS: When ya change a reservation on Southwest, they don't add-on a fee, $25---$100, whatever it's now at Delta, which really is a damne ****ser in case nobody told them. I cannot totally disagree with your pov, as I agree the marketplace is much more efficient than regulation or fare maintenance--the public policy rationale is purportedly so that the smaller cities could get fairly good airline service too Delta somehow/seemingly kept Southwest out of ATL, but couldn't keep-out Air Tran, which has obtained new planes rather than those strictly ole DC-9s, and I've flown on 'em both. However, though I readily concede 9/11, and that the fuel price finally broke their back, I perceive the senior management and senior pilots of Delta got too g.d. greedy, and perhaps ****ed-off other employees--hurting morale. Delta had relatively few labor problems prior to the 1990s, though I'm subject to mis-apprehension & other idiocy. When Eastern had all its troubles, it was popularly thought that Delta's employees liked their company too much to allow it to fail. They literally chipped-in cash (?) for their company at one point. The idea about Mullins is some of the gossip an outsider gathers from local media. |
#4
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"Reef Fish" wrote:
Eastern went belly up for reasons of incompetent Management! There was more to the issue than simply the effectiveness or ineffectiveness of management. Yes, there were many things the management could have done better, but they were caught by a basic change of rules (deregulation) and a legacy of high interest rates, along with intransigent unions. Eastern had purchased a large number of new aircraft when interest rates were high, in anticipation of major expansion, and were therefore caught with a high cost fleet when deregulation was dropped on them, along with a the drop in interest rates which benefitted their competition. There wasn't much Eastern's management could do to quickly bring their costs in line with the low cost carriers that could lease low cost aircraft at low interest rates, flown by pilots that accepted much lower pay and fewer non-pay restrictions. They had been flying along fat and happy, only to have the rules changed out from under them at the same time as interest rates dropped. They were trapped, with little chance of recovery, no matter how good their management was. |
#5
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James Robinson wrote: "Reef Fish" wrote: Eastern went belly up for reasons of incompetent Management! There was more to the issue than simply the effectiveness or ineffectiveness of management. Yes, there were many things the management could have done better, but they were caught by a basic change of rules (deregulation) and a legacy of high interest rates, along with intransigent unions. That change affected all the OTHER airlines as well. It's not as if someone was picking on Eastern. Eastern had purchased a large number of new aircraft when interest rates were high, in anticipation of major expansion, and were therefore caught with a high cost fleet when deregulation was dropped on them, along with a the drop in interest rates which benefitted their competition. That was exactly a MANAGEMENT decision! All businesses are gambles. When Eastern put down a stack of chips better to win, or the football coach decides to go for broke (no pun intended), and it didn't work out, the buck (the blame goes to) stops at the Management. If the gamble turned out rosy, the Management gets the glory. There wasn't much Eastern's management could do to quickly bring their costs in line with the low cost carriers that could lease low cost aircraft at low interest rates, flown by pilots that accepted much lower pay and fewer non-pay restrictions. That's exactly what the Management has to consider -- something like a backup plan or worst case scenario. If it's unable to cope with a decision that didn't freak other airlines, then it was nobody but the Management to bleme. The higher the EXPECTED return, the high the RISK. Econ and Finance 101 students know that. They had been flying along fat and happy, only to have the rules changed out from under them at the same time as interest rates dropped. They were trapped, with little chance of recovery, no matter how good their management was. You got that part wrong. :-) The Management WASN'T good, which was why they put themselves into that BAD position. If half the businesses decisions are based on hindsight, the bankrupcy courts would be sitting nearly idle. The only loser would be the guy that lost on a bet in a game, and bet and lost again on TV replay. :0) -- Bob. |
#6
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"Reef Fish" wrote:
James Robinson wrote: "Reef Fish" wrote: Eastern went belly up for reasons of incompetent Management! There was more to the issue than simply the effectiveness or ineffectiveness of management. Yes, there were many things the management could have done better, but they were caught by a basic change of rules (deregulation) and a legacy of high interest rates, along with intransigent unions. That change affected all the OTHER airlines as well. It's not as if someone was picking on Eastern. No question that it affected other airlines, but you seem to be picking on Eastern over the others. Over 100 airlines have gone bankrupt or been liquidated since deregulation. Twelve of them major airlines. Did all of them have incompetant management? The reality was that the major carriers had been sitting fat, dumb, and happy under CAB regulation, and had cost structures that fit with the rates they could charge. They had relatively high labor rates, restrictive work rules, generous fringe benefits, and inefficient route structures. They were just getting over the first period of energy uncertainty, and were entering a period of high inflation. The economic structure of the airline industry had evolved over many years, and was encumbered by severe institutional momentum and lethargy. Suddenly, the rules of the game were changed out from under them. They could not react quickly enough, since the necessary changes to labor agreements simply cannot be negotiated under the normal adversarial system. The base cost and makeup of their fleet cannot be changed overnight. PanAm was pretty well left in the lurch, since they had to domestic route structure. They attempted to buy into National to both get cash and to gain friendly domestic feeder, but it was too little too late. Was that bad management? Braniff decided to attempt to retrench, several times, and shed much of their route structure, including the formerly profitable South American services. That didn't work for them. Was that bad management? Eastern decided that their only hope was to greatly expand services out of the east coast, since they were being eaten alive on their bread-and-butter services between the mid-Atlantic states and Florida, and felt their only hope was to grow to a critical mass. Unfortunately for them, the interest rates took off, and they ended up acquiring a very expensive fleet. Was that "incompetent management?" Not really any worse than the other choices, they were all victims of bad timing, and fell for a number of different reasons. The common thread is that they were all unable to react quickly enough to the new realities of the industry. The other legacy carriers have eventually fallen for the same reason, they were just lucky in some cases, or were better at delaying the inevitable, but they have all seen the same end result. The Management WASN'T good, which was why they put themselves into that BAD position. If half the businesses decisions are based on hindsight, the bankrupcy courts would be sitting nearly idle. The only loser would be the guy that lost on a bet in a game, and bet and lost again on TV replay. :0) You are criticising the management using hindsight. At the time, their gamble was reasonable, given their particular circumstances. They were one of the first airlines to have a frontal assault from low cost carriers, and they could not meet that attack with their existing structure. They were essentially doomed if they tried to directly compete with no changes, and as it played out, doomed when they tried to expand outside of their traditional markets. Had interest rates not taken off when they were implementing their strategy, they might have held on longer. As it was, no management, good or bad, could have changed the inevitable. |
#7
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James Robinson wrote: "Reef Fish" wrote: James Robinson wrote: "Reef Fish" wrote: Eastern went belly up for reasons of incompetent Management! There was more to the issue than simply the effectiveness or ineffectiveness of management. Yes, there were many things the management could have done better, but they were caught by a basic change of rules (deregulation) and a legacy of high interest rates, along with intransigent unions. That change affected all the OTHER airlines as well. It's not as if someone was picking on Eastern. No question that it affected other airlines, but you seem to be picking on Eastern over the others. You need to learn to read in CONTEXT. I didn't pick on Eastern at all. The OP of this thread Cohen gave his reasons why it was easy to predict Eastern's bankrupcy. I disagreed, and blamed in on Management. The economic structure of the airline industry had evolved over many years, and was encumbered by severe institutional momentum and lethargy. Suddenly, the rules of the game were changed out from under them. You are just repeating yourself on what you had already posted. It was Eastern's Management that made a poor bet and lost, while the other Managements of other airlines survived. PanAm was pretty well left in the lurch, since they had to domestic route structure. They attempted to buy into National to both get cash and to gain friendly domestic feeder, but it was too little too late. Was that bad management? Yes. What got them into the "too little too late" condition. Braniff decided to attempt to retrench, several times, and shed much of their route structure, including the formerly profitable South American services. That didn't work for them. Was that bad management? Yes. Bad Management in choosing something that didn't work for them. Eastern decided that their only hope was to greatly expand services Deja vu reason about how it got caught by interest rate rise. Was that "incompetent management?" Not really any worse than the other choices, they were all victims of bad timing, and fell for a number of different reasons. Of course that was "incompetent management", to have put all its eggs into one basket that was inelastic to economic change. Good management would have considered "fall back" position when something didn't work out as rosy as it had thought -- rather than placing themselves in a belly-up position as soon as interest rates rose. That was what I said befo The Management WASN'T good, which was why they put themselves into that BAD position. If half the businesses decisions are based on hindsight, the bankrupcy courts would be sitting nearly idle. The only loser would be the guy that lost on a bet in a game, and bet and lost again on TV replay. :0) You are criticising the management using hindsight. At the time, their gamble was reasonable, given their particular circumstances. One key element of economics and finance that escaped you is that ALL businesses are GAMBLES. If any Management of a businesses takes in irrevocable "bad gamble" (of course it's hindsight, how else can you tell if a gamble worked or not?), then the buck stops THERE. They miscalculated. They screwed up. They took a bad gamble that caused the company's bankrupcy. It's that simple. As it was, no management, good or bad, could have changed the inevitable. ********! If Eastern hadn't gotten greedy by ordering a large new fleet and got caught by the interest squeeze, there would have been no bankrupcy proceedings caused by that bad gamble. -- Bob. |
#8
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"Reef Fish" wrote in message
oups.com... Whether you believed it or not, Delta and other airlines WERE making profits. Eastern went belly up for reasons of incompetent Management! Maybe, but I think one of the biggest factors was the disgraceful actions of Charlie Bryan and the International Association of Machinist and Aerospace Workers (IAM). You look at how Bryan acted over the company's final years and it really looks like he make his decisions based more on the chip on his shoulder towards management than for the well being of the workers. He forced Frank Borman to resign and when Frank Lorenzo took over they went on a strike that made the airline bleed money. After Eastern went belly-up IAM claimed it as a victory! http://www.airlinesafety.com/Unions/...yAtEastern.htm |
#9
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"james_anatidae" wrote in message ... "Reef Fish" wrote in message oups.com... Whether you believed it or not, Delta and other airlines WERE making profits. Eastern went belly up for reasons of incompetent Management! Maybe, but I think one of the biggest factors was the disgraceful actions of Charlie Bryan and the International Association of Machinist and Aerospace Workers (IAM). You look at how Bryan acted over the company's final years and it really looks like he make his decisions based more on the chip on his shoulder towards management than for the well being of the workers. He forced Frank Borman to resign and when Frank Lorenzo took over they went on a strike that made the airline bleed money. After Eastern went belly-up IAM claimed it as a victory! http://www.airlinesafety.com/Unions/...yAtEastern.htm How very accurate you are. Eastern had a long history of labor issues, with Bryan and the IAM basically daring managemen to sell out to Lorenzo. |
#10
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In article .com,
Robert Cohen wrote: In the mid-late 1990s, I saw in the local newspaper that some senior Delta captains were being paid approximately up to $500,000 a year... That newspaper was wrong. Delta pilots have NEVER made that kind of money. |
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