Wall Street Journal on airline labor costs

“Airlines’ Rising Labor Costs in Focus Ahead of Earnings” is a January 16, 2016 WSJ article making some of the same points that I made in “Unions and Airlines” back in 2010. Labor rates tend to be set during times of high profit:

As fuel prices have plunged, employee pay and benefits have returned as airlines’ biggest expense item. Because the industry—which not too long ago was mired in red ink—appears to be minting money now, its pilots, flight attendants, mechanics and other workers are demanding to be rewarded for aiding in its turnaround. They also want to recoup concessions they made when companies went through bankruptcy-court protection.

This leaves nothing for investors if the good times end. Right now the good times are mostly a result of a lack of competition (the government approved every conceivable merger; efficient competitors such as Ryanair are prohibited from offering their services to American consumers for domestic flights). Perhaps the oligopoly won’t end, but profits for investors could end if the next round of labor negotiation transfers the profits from lack competition into employees’ pockets.

My recommendation: Don’t buy stock in any U.S. airline!

A reader comment is interesting:

And the regional airline pilot’s/crewmember’s pay?? Too funny. Nothing like contacting tower for takeoff, knowing the pilots in front of your airplane are making 4-6 times more money for the same job. Interesting to see how the industry looks 10 years from now!

6 thoughts on “Wall Street Journal on airline labor costs

  1. What exactly was “too funny” about that concluding “interesting” reader’s comment? (I lost my Philthought™ Decoder Ring).

  2. I was under the impression that, unless staff takes the money, the CEO will. I never realised the investors could to get a windfall. Isn’t that illegal or at least against the best interest of the boards of directors?

  3. If I recall correctly, the cumulate ROI for investors in the airline industry since the beginning is zero, which makes you wonder why anyone in their right mind would invest.

    It seems tempting right now because we have seen fuel costs fall while ticket prices and load factors have remained high and competition has disappeared, which would all seem to point to profits. But profits in the airline industry always seem to be temporary so you can’t (shouldn’t) put a high multiple on them for valuation purposes – chances are the profits won’t be around for the # of years in your multiple.

    Regarding Federico, under capitalism, profits are not considered a “windfall” or “illegal” – you appear to be confusing that with some other system.

  4. The long term financially-successful sectors (not “profitable” in the case of airports and government agencies) of the air travel industry are aircraft manufacturers, lessors, other vendors, airports, and government services. The airlines are rotating troupes in the pageant, who handle the money and come and go in different costumes.

  5. Warren Buffett says he has an 800 number to call if he ever feels the urge to buy an airline again.

    Was it Warren or P. Greenspun that suggested that every oil company should be forced to buy an airline?

Comments are closed.