Two for the price of one!

Here it is, folks; the day we've all been waiting for. Northwest Airlines and Delta Air Lines, both going bankrupt the same day!

I bet all those Northwest mechanics, striking from their $37/hour jobs, feel pretty stupid now. Yesterday they lost their jobs (Northwest began hiring permanent replacements) and today they will lose their pensions. Happy retirement job hunting!

Who would have predicted two of America's largest and best-known companies would become penny-stocks?

Plenty of people. At this point it is clear that the US aviation industry is an unmitigated disaster. United Airlines. US Airways. Delta. Northwest. Our biggest air carriers are completely and universally unable to turn a profit. Nor is this a recent phenomenon brought on by rising fuel costs, Hurricane Katrina, the war in Iraq, or the September 11 attacks. For decades, the airlines have been playing this game, blaming external events for their failure and getting bailed out by the US government.

There are two solutions for this problem. One is to nationalize US aviation. The other is to let the free market run its course. No more bail-outs. No more emergency federal loans. If an airline can't turn a profit, they go out of business. Anything less will just prolong the problem, and increase the cost taxpayers must eventually bear.

Tags: airlines, strategy, Northwest, Delta, strike, union, bankruptcy

Striking mechanics just don't get it

Northwest Airlines' striking mechanics just don't seem to get it. The mechanics average about $70,000 a year in pay. They were willing to take a 20% pay cut, but no the 25% cut the company proposed. This represents a new average pay of $56,000 versus $52,500. Today in negotiations Northwest demanded even steeper cuts.

I know there is some hardball negotiating going on here, but the mechanics need to consider their position. Northwest has done reasonably well with its replacement workers, and has said it will begin hiring permanent replacements on Tuesday if a deal has not been reached. Northwest clearly has a lot of bargaining power here, since it has such an alternative. What alternative do the mechanics have? They will probably be lucky to get jobs that would match even the 25% pay cuts that Northwest was offering.

Tags: airlines, strategy, Northwest, strike, union

Nothing to lose means everything to gain

A couple days ago I commented on the stock market's odd reaction to the Northwest Airlines strike. I stand by my comment, and apparently The Economist does too. While British Airways has cut $1.8 billion/year in costs and is in a strong financial position, they have been crippled by their recent strike. Northwest Airlines, on the other hand, anticipated the likelihood of a strike, and on the verge of bankruptcy with little to lose, didn't give much in their union negotiations.

Tags: airlines, strategy, Northwest, strike, British Airways

Northwest Airlines employees strike

Shares of Northwest closed down 10 cents, or 1.8 percent, at $5.38 Friday on Nasdaq, as the Aircraft Mechanics Fraternal Association, representing 5,400 mechanics, cleaners and custodians, went on strike.

I have to confess my surprise at this. I thought a strike, particularly a really crippling strike, would have been just the thing to tip the struggling airline into bankruptcy. Although bankruptcy is usually viewed as a negative, in this case it would allow Northwest to dump their pensions on the PBGC and restructure all their labor contracts. Today, bankruptcy could be a competitive tool in the airline industry.

Tags: airlines, business, strategy, Northwest, strike, bankruptcy

Those wacky airlines!

More news from the crazy dysfunctional US airline industry...

Senator Charles Grassley (R-Iowa), chair of the Senate Finance Committee, said yesterday that he was willing to let airlines stretch out pension payments, but airlines should freeze plans so no more benefits are promised that they cannot pay. Delta and Northwest (the third and fourth largest domestic carriers) are lobbying for legislation that would give airlines up to 25 years to repair pension underfunding, while American Airlines and its unions said in a letter to the committee that it is working hard to maintain its defined benefit pension plans and needs legislation that does not require it to freeze the plans. Will the Senate offer the same consideration to struggling US automakers?

Meanwhile, airlines are desperately seeking cost cuts and new revenue streams. Starting tommorrow Northwest will no longer offer passengers a free half-ounce bag of pretzels during flights. Passengers who want a snack will have to pay $1 for a three-ounce bag of almonds, cashews and raisins. According to spokesman Kurt Ebenhoch, the move will save Northwest about $2 million a year. Northwest is also pulling its 30 free magazines from its planes. The airline isn't eliminating its own Northwest in-flight magazine, but its complimentary copies of Business Week, Glamour and Harvard Business Review are history.

On the revenue side, Alaska Airlines and US Airways flight attendants are pushing VISA cards from Bank of America. America West now put advertisements on seat trays. And United Airlines has recieved FAA approval to offer Wi-Fi service on flights, a service for which Lufthansa charges $30 per flight or $10 per half hour.