Contracting flying to the lowest bidder - The business model

[ourkid2000]

There's way too much pilot talk in these discussions......the whole thing is so much broader than that. In any case, from a business perspective Ryanair are one of the only airlines out there doing it right. Yeah that's right, I said it.

They've jumped right to the end of the race to the bottom and trying to make a go of it from there. Meanwhile the rest of them are locked in these excruciating death spirals. All the while destroying every stain of capital along the way and devastating employees and their families.

At least when you start working for Ryanair you have no illusions of a career.

[Gilles Hudicourt]

I am trying to figure out the point of your presentation other than that for internal consumption amongst the airline personel (pilots) that populate this site to generate discussion - and it has done that.

My point is that the present Laws and Regulations :

1) Allow for a Canadian airline to subcontract 99% of its flying to cheaper ACMI sub-contractors and skill keep its licence and airline status.

2) Allows a Canadian airline to create a new airline subsidiary with a distinct Operating Certificate, hire different employees to run the new airline and then have the new lower cost airline fly under the licence of the first one.

3) Allow foreign airlines to apply for a Canadian permit from the Canadian Transportation Agency (CTA) and instead of flying to Canada with their own aircraft and crew, send to Canada aircraft that are ACMI sub-contracts from cheaper operators flying on behalf of the foreign airline that has the Canadian licence.

#3 above obviously puts tremendous pressure on Canadian carriers do do the same to remain competitive.

I think that these things are too permissive and need to be addressed. I'm calling on people of my profession to recognize a clear and imminent danger to the profession and to our careers. We should not accept this as unavoidable but attempt to do something about it. The laws and regulations are set up to allow the airlines to race each other to the bottom at the expense of the only thing they can squeeze: the airline employees, their work conditions and their salaries. These permissive laws and regulations are nothing less than union busting tools that are provided to the airlines.

What I am suggesting is that the Act, the Regulations or Policies be changed to

1) Limit the amount of aircraft an airline may sub-contract to an ACMI feeder.
2) Not allow the holder of an OC which does not have a licence to fly under the licence of another licence holder.
3) Not allow ACMI sub-contractors (feeders etc) to do international or trans border flights, be it Canadian or Foreign except in special cases (AOG, etc)

[Old fella]

An amiable cause sir, and I wish you every success as you obviously have an in-depth knowledge and a very keen interest in these matters. I am not sure the general flying public takes into consideration your “clear and imminent danger to the profession and our careers” when they purchase services or if they really care. If there is indeed a race to the bottom and the bottom is met well you can indeed hold up that placard "I told you so."
By you leave, over and out.

[Inverted2]

Sadly, it takes things like this to get the public's attention to our cause.

[ourkid2000]

Inverted2.....

What you're saying is very true, however, did that accident make any real difference to the race to the bottom? Nope. Sure people are aware of the problem but nothing really changed.

[Gilles Hudicourt]

http://m.bizjournals.com/phoenix/news/n ... fbk&r=full

According to the Dallas Morning News, the crew that arrived from US Airways back in December to run American Airlines and AAL netted a cool $79 million in stock sales during the last month. That covers chief executive Doug Parker, president Scott Kirby and four other top managers.

At the same time, however, American pressed for another concessionary contract at American Eagle, its wholly owned commuter airline. When the leaders of the pilots union last week decided not to put the contract to a vote of rank-and-file aviators, American management immediately retaliated by deciding to reduce the size of the American Eagle fleet. American's newly enriched managers also claimed that they would search for cheaper commuter carriers to do American's flying.

Whether that is a real-world possibility given the industry-wide pilot shortage remains to be seen. But the incongruity of newly arrived US Airways bosses feathering their financial nests while demanding concessions from their scarcer-than-hen's-teeth pilots did not escape the notice of commentators on a leading airline bulletin board.

American's new bosses "are just cashing in on the fact that they haven't given raises [at US Airways] since 1991," one poster claimed. "They terminat[ed] most of the company contribution to our retirement plan, canceled retiree health care benefits and contracted our work to companies where workers qualify for food stamp[s]."

The commentator's bitter conclusion? "This is where we are in America."

American Airlines, the licence holder, is telling its wholly owned cheap ACMI company "if you don't take those concessions, we will have to reduce your fleet, lay a bunch of you off, give your aircraft to another cheaper ACMI, and sign a contract with them. Then we will send those cheap suckers to Canada to fly on behalf of American Airlines, instead of you not-cheap-enough suckers".

That will allow AA to cut its cost on trans-border flights. This will put pressure on Air Canada and Westjet to also cut costs on same transborder flights, cost that they would not be able to reach with their own fleets, so they will send in their stead the likes of Georgian and Sky Regional.......

[Jean-Luc Monette]

I am not sure the general flying public takes into consideration your “clear and imminent danger to the profession and our careers” when they purchase services or if they really care.

I understand what you're saying, Old fella, but this is, after all, an aviation forum...

[Dick]

I think I have a solution for this problem in Canada...any airline that doesn't run their business like Air Transat and threatens their operation should simply be shut down. If there is no legal basis to shut them down, there should be. Problem solved. Now let's all put our heads together to see how we can make this happen!

[complexintentions]

Inverted2.....

What you're saying is very true, however, did that accident make any real difference to the race to the bottom? Nope. Sure people are aware of the problem but nothing really changed.

I would submit that there were some pretty significant changes made to US licensing regulations as a direct result of the Colgan accident. If this will eventually translate to something better for pilots, I don't know. But things definitely changed.

[TheStig]

Air Canada which has about 182 aircraft, wet-leases 176 aircraft from Jazz, Rouge, Sky Regional and Georgian. And this proportion may increase to where there will be more sub-contracted feeder aircraft flying under the Air Canada banner than real Air Canada aircraft. How many more aircraft can Air Canada transfer to its feeders before we say enough!

Right now Air Canada has just 57 wide bodies. What if they decided, like someone suggested on this thread, to just keep those 57 wide bodies on their fleet and have 301 aircraft or more, operated by sub contracted feeders flying on the Air Canada licence ? Would that be acceptable ? It might help Air Canada bring costs down and provide even cheaper tickets to the grateful Canadian Public.

The current laws and Regulations allow it. Only Scope clauses stand in their way. Is that enough ?

There are no doubt a number of dreadful nightmare scenarios that could happen. However, here's where your argument doesn't hold any water, Transat's pilots managed to 're-claim' AT's narrow body flying by undercutting wages that were already the laughing stock of the industry! $80,000/year for 737NG Captains? I'd get off your soapbox because AT's wide body pay isn't anything to brag about either. Aside from the fact that Air Canada's pilots voted down the LCC and it was forced upon them, I'd still rather be a rouge Captain on the Air Canada pilots list earning twice that much, why does it matter if rouge holds a separate OC?

Despite all of problems ALPA, WJPA and ACPA face and the issues they have I would rather see them negotiating with employers than the Federal Government trying to interject in private business.

[YYZSaabGuy]

Despite all of problems ALPA, WJPA and ACPA face and the issues they have I would rather see them negotiating with employers than the Federal Government trying to interject in private business.

That sums it up nicely. For the most part, government departments (in general, not just the current lot) couldn't organize a piss-up in a bar: the real economy has more linkages and unintended consequences than their regulatory programs can possibly manage.
I'm all in favour of pilots earning as much as possible: just not through re-regulation.

[aerodude]

Despite all of problems ALPA, WJPA and ACPA face and the issues they have I would rather see them negotiating with employers than the Federal Government trying to interject in private business.

That sums it up nicely. For the most part, government departments (in general, not just the current lot) couldn't organize a piss-up in a bar: the real economy has more linkages and unintended consequences than their regulatory programs can possibly manage.
I'm all in favour of pilots earning as much as possible: just not through re-regulation.

Agreed. Companies have to adapt or go bankrupt, regulations will just prevent present companies to be profitable. What happens when a new start up with low cost model competes with the larger older airlines with high cost structure with unions ran by senior employees only taking care of senior people.
I agree with you completely regarding laws on foreign pilots Gill, but adding more burdensome regulations on companies would be a step backward.

[aerodude]

There are no doubt a number of dreadful nightmare scenarios that could happen. However, here's where your argument doesn't hold any water, Transat's pilots managed to 're-claim' AT's narrow body flying by undercutting wages that were already the laughing stock of the industry! $80,000/year for 737NG Captains? I'd get off your soapbox because AT's wide body pay isn't anything to brag about either. Aside from the fact that Air Canada's pilots voted down the LCC and it was forced upon them, I'd still rather be a rouge Captain on the Air Canada pilots list earning twice that much, why does it matter if rouge holds a separate OC?

Agreed!!!!!!
I've seen laid off Canjet captains that used to earn more than twice that amount that have now joined Skyregional to feed their families, and its disheartening to see the new 737 payscale at AT, left or right seat. I thought it was suppose to be a step forward. You can't blame other operators for lowering the bar, and then undercut the salaries of a 737 driver at AT.

[Gilles Hudicourt]

So you think that a Licence holder should be allowed to create a shadow airline, transfer part of its fleet to the new airline, lay employees off from the old airline, hire new employees for the new airline and have the new airline fly the passengers of the older airline, using the licence of the older airline on an ACMI basis?

Am I the only one who thinks there is something inherently wrong with this ? Why have unions at all then ?

[aerodude]

So you think that a Licence holder should be allowed to create a shadow airline, transfer part of its fleet to the new airline, lay employees off from the old airline, hire new employees for the new airline and have the new airline fly the passengers of the older airline, using the licence of the older airline on an ACMI basis?

Am I the only one who thinks there is something inherently wrong with this ? Why have unions at all then ?

If its to remain competitive than yes. Are you prepared to pay for triple the price for products or your car since you want the entire material, parts and labour all from one country?
Unions are only as strong as it's membership, specially in airline. From my past experience airline unions in North America have had very narrow interests and usually doesn't represent the entire workforce but only the few up top of the magic "seniority list".
Try telling a junior Lufthansa or Air France f/o who earns more than any of us, how it works here. He/she will laugh at us.

[Gilles Hudicourt]

The business model Air Canada would like to see in Canada. The broken business model.....

http://www.businesswire.com/news/home/2 ... xNchvmHjrx

[TheStig]

The business model Air Canada would like to see in Canada. The broken business model.....

http://www.businesswire.com/news/home/2 ... xNchvmHjrx

I'm not sure what has prompted you to start attacking AC. Last time I checked AC's narrow body and wide body pay scales are the highest in the country, pilots are provided pensions, applicants don't have to have type ratings or sign training bonds, they haven't laid off a pilot since 9/11, and hire only pilots with the right to (permanently) work in Canada.

[sstaurus]

The business model Air Canada would like to see in Canada. The broken business model.....

http://www.businesswire.com/news/home/2 ... xNchvmHjrx

I'm not sure what has prompted you to start attacking AC. Last time I checked AC's narrow body and wide body pay scales are the highest in the country, pilots are provided pensions, applicants don't have to have type ratings or sign training bonds, they haven't laid off a pilot since 9/11, and hire only pilots with the right to (permanently) work in Canada.

And what is Rouge other than a B-scale... I see a trend.

[Gilles Hudicourt]

I'm not sure what has prompted you to start attacking AC. Last time I checked AC's narrow body and wide body pay scales are the highest in the country, pilots are provided pensions, applicants don't have to have type ratings or sign training bonds, they haven't laid off a pilot since 9/11, and hire only pilots with the right to (permanently) work in Canada.

Am not attacking Air Canada. But just imagine what Air Canada could do with these super permissive laws and regulations were it not for Scope clauses........

It's the laws and regulations that allowed Rouge to exist the way it did that I am attacking.....and the laws that allow Air Canada to have as many feeder aircraft (or more) flying on behalf of Air Canada than the AC mainline operates.......

Westjet can do it, Air Transat can do it, Sunwing can do it, and we don't all have those neat Scope clauses to protect us from those out to squeeze more profit out of their employees' pockets.......

[dazednconfused]

We must never reach the level where pilots will have to pay to sit in the right seat of a feeder and pay for their type ratings out of their pockets. If we don't reverse this trend, this is where we will end up.

Air Transat is bringing its 737 flying in house. To obtain that, we accepted another pay scale for the 737 for until then we had a unique pay-scale regardless of aircraft type.

The salaries for the 737s go from 90,5 to 157.2 for the Captains, and 50 to 81.7 for the SIC over a 10 year pay scale. I must state that even though our first 737 arrived in Feb 2014, this pay-scale was negotiated by our Union in 2009, but it took that long to finally get the flying. The current contract is to be re-negotiated later this year. However, our 737s will be flown under our own Certificate, not under a separate one like Encore and Rouge.

Gilles, I'm not a pilot, or a part of the aviation industry. I would love to be a pilot though as it's been my life dream and sitting behind a desk is slowly killing me. Watching the industry fall apart is sad....50k for a 737 FO?? How many years did it take for that pilot to get to that position? I'm going to guess about 7. You say we must never reach the level where pilots pay for the right seat, but at 50k/year, or even 80K for a Captain, I hate to say it, but those pilots are subsidizing the company and essentially paying (giving up salary) to be in those positions. Maybe this salary is the new norm and I'm out of touch, but it doesn't sound like something the pilot union at AT should be bragging about, other than hopefully, it keeps some jobs in Canada vs outsourcing.

I notice you seem to put companies and government under the microscope, but the real problem is experienced pilots who are easily willing to work for what amounts to entry level wages in most other careers (ie 50k-80k for a 737 FO spot at AT). Entry level sales jobs pay more. There is no incentive for the airline to to pay more tho, especially when the company can outsource work and still move people from A to B. I don't understand why the government should step in to protect high wages, or prevent restructuring, when there are many pilots willing to work for less, which is obvious as the regionals or restructured 705 ops probably do not have a problem finding employees. I'm sure many trucking companies outsource work, maybe even all of it, so I don't see why airlines can't outsource or restructure if it means saving money and offering cheaper tickets to the consumer which is a net benefit to most citizens and the shareholder.

This isn't just happening in aviation. There are many corporations, trying to lower costs, which are making their own employees re-apply for their job, ie compete with outsiders who will work for less, and now resorting to unpaid internships for new grads. It all amounts to too many people who are willing to work, and too few jobs, stemming from immigration, job cuts, plus global competition with jobs easily being moved offshore. I hate to say it, but I think if our major mainline carriers and regionals offered unpaid FO spots, in lieu of time building and experience, there would be no shortage of applicants.

[Gilles Hudicourt]

Here is what worries me in simple terms.

The management of a long established airline in Canada staffed by mostly unionized employees feels that its employee and social costs are too high.

There are labor laws which protect the employees and prevent the company from being able to just fire the older higher paid employees and replace them with new hires that work for less money. That is the kind of protection unions offer. Non unionized employees, can, after faithfully working for a company for 20 years, one day get a letter, hand delivered to their desk, stating their post has been abolished. Behind the HR person delivering the letter is a security guard who collects your company ID Card, watches as you gather your personal effect and escorts you to the door. This is not possible with unionized employees.

But when an airline is allowed to create from scratch a clone of itself, transfer part of its fleet to the clone, hire new cheaper employees to staff the clone and then advise the Canadian Transportation Agency that the clone will be carrying the first Airlines' passengers while also flying using the licence of the first airline, I see this as the government providing the airlines a back door in order for it to bypass the protections provided to the unionized employee by the labour laws.

Thats the way I see it anyway. But is does not seem to have too much impact on airline employees on this forum. They prefer to fight each other.

[watermeth]

I would think that the problem is that not one airline manager today believes in investing in its work force but drives their company operations as if it where a wallmart. There is such a lack of creativity that reducing wages and hiring seasonal workforce are the only ideas they come with to make a bit of money. Even in retail matket where margins are extremely thin and pressure extremely high on prices, some companies manage to give its employee good compensation, good package benefit and incentive to remain competitive. costco is a good model and you can be sure that when 150 jobs are advertised at costco they receive thousands of application.
However, despite its lowpaid worforce, chaotique schedule to minimize payroll budget and no training given to its workforce, wallmart struggles with low financial results, poor resources management and employee moral.
(And just as a note, please realize that airline pilot ain canada are on the way to earn less than a Costco employee for nearly the same amount of years in a company.)

Airlines in canada are doing the same as retail market bad examples. AC Just began a downward spiral by reducing wages and increasing working hours, allowing employee's moral to go down and guess who will suffer from that ? Customers. They might be willing to travel on a different airline. Westjet was a good model but started the same cycle with encore unless they readjust pay. Time will tell.
AT is the only creator of its past 2 years difficulties : too much investment in over capacity (a300) for a wrong type for the wrong route, reservation software, fuel edging. That prevented them to be present on the so sensitive carrebean market. They left a gap and sunwing used it. You can think it's fair or not, that's competition. The hiring of foreign pilot some are focusing on is not the root cause of our hard times as pilots.
AT pilots union accepted to lower the bar concerning those 737 new spots, they also got trapped by accepting to reduce or cancel their yearly wage increases hoping to gain back a contract that didn't come back. You don't vote yes on that without a minimum of guarantees, or protection. What do you guys think? This is a business.
How can you have the slightest credibility if you, as a pilot, is not even able to protect your terms and condition against a slow but sure erosion ?

You can say whatever you want: you can accuse those foreign pilots to be the cause of your lay offs, you can denounce the government complacency, advocate safety in a biased way. You can accuse the others to be the rootcause of your problem, but unfortunately, as long as your union will sacrifice your terms and condition, as long as your boss wil continue to apply a 50years old business model, you'll remain behind the curve.

[Rogerdodger2]

Thats the way I see it anyway. But is does not seem to have too much impact on airline employees on this forum. They prefer to fight each other.

Because whatever Gilles says is gospel and 100% correct. Other Airline Employees points of view need not apply.

[dazednconfused]

There are labor laws which protect the employees and prevent the company from being able to just fire the older higher paid employees and replace them with new hires that work for less money. That is the kind of protection unions offer. Non unionized employees, can, after faithfully working for a company for 20 years, one day get a letter, hand delivered to their desk, stating their post has been abolished. Behind the HR person delivering the letter is a security guard who collects your company ID Card, watches as you gather your personal effect and escorts you to the door. This is not possible with unionized employees.

But when an airline is allowed to create from scratch a clone of itself, transfer part of its fleet to the clone, hire new cheaper employees to staff the clone and then advise the Canadian Transportation Agency that the clone will be carrying the first Airlines' passengers while also flying using the licence of the first airline, I see this as the government providing the airlines a back door in order for it to bypass the protections provided to the unionized employee by the labour laws.

Hi Gilles,

I have a family member who was forced to re-apply for their job, at a well respected, well paying, multi-national corporation. I was let go from a well paid position, at a good company, who laid off half their staff under the banner of too many staff, only to see they are posting for the positions they let go - at a much lower wage. So, at the end of the day, corporations know there are an abundance of people out there willing to work for less than what the current staff are working for. Can you blame the airlines for figuring out a way to create a clone airline where they can operate at a much lower cost? Companies are responsible to the shareholders and if there is a labour pool out there, who will work for less, then why wouldn't they tap it? The problem is, the working for peanuts is engrained from day one as newly minted CPL's are more than eager to take a ramp position in the middle of nowhere for poverty wages. So being offered a right seat position at anything above min wage seems like a great opportunity. Anyway, even as a pilot, say I'm with AC, if it means making less money, but having better job security (in the sense that the share price stays flat or slowly rises) it might be a trade off I'm willing to make vs going through lay-offs every X number of years. The upside to all of this is I'm seeing more jobs posted - at not so great wages mind you.... No easy solution because if Canadian pilots refuse to work for a lower wage, one way or another, either foreign pilots will be hired OR a foreign carrier will come in and do the work. No longer are we competing with each other as Canadians for work, but we are competing with people from around the world who are willing to do the same work we are doing, and accepting a much lower standard of living. Again, management is only doing what is logical...tapping a low cost labour pool (Ryanair knew this) and it's no different than when you go shopping for an identical item and probably purchase the lowest cost similar item (ie walmart and Costco being so busy). Pilots find themselves in a bad spot because too many people want do to it as a career, not so many jobs out there, and it's to the point people are working for free to gain experience (lionair, etc.). The battle isn't between management and unions, it's between pilots who keep under-cutting each other.

[Takeoff OK]

Why do people keep comparing the airline industry to other business models? This is transportation, which is one of the most heavily regulated industries that exists. One key reason for all that regulation is that transportation is one of the key pillars of both national security and national economic stability -- the goods and people must move, and we must be able to move them at a moment's notice in the event of unforeseen circumstances. This is why the Railway Labor Act was established in the US; so that striking workers could not undermine the ability for things to be moved, when they needed to be moved. Until recently, there has been no similar legislation enacted anywhere for any other group, with the exception of emergency service workers in some jurisdictions. So stop comparing us to Walmart or Costco. It is apples and oranges. If you don't get that, or don't approach the issue from that perspective, then you have nothing valuable to add to the conversation because you are fundamentally ignorant as to what factors are actually involved.

Get a licence and some financing, and anyone can open a retail store or r&d company tomorrow. Try starting an airline and see what the hoop jumping entails. They are not the same thing.