Airline Industry Council:
First Annual Meeting
Industrial and Labor Relations Association
January 7, 2005
Philadelphia, PA
Agenda for Today
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Overview of Airline Industry Council
Our research partner: The MIT Global Airline
Industry Program
Low cost competition: Panel discussion
What the AIC should do this year: Discussion
Industry Councils
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Industry studies important due to competitive
and employment dynamics that are unique to
each industry
Proposal to advance industry studies through
a network of Industry Councils at the IRRA
Concept proposed by Joel CutcherGershenfeld and Paula Wells in Fall 2003,
funded by Sloan Foundation
Industry Councils
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Each council will include academic,
government, labor, neutral and
management representatives
IRRA will provide central staff support
Industry Councils can link with the
Industry Centers already established
and funded by the Sloan Foundation
– ie. the MIT Global Airline Industry Program
Other Industry Councils
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Aerospace Industry Council
Auto Industry Council
Construction Industry Council
Federal Sector Council
Health Care Industry Council
Telecommunications Industry Council
Potential for others in
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Banking
Education
Food
Paper, etc.
Airline Industry Council Charter
Aim: We are committed to promoting constructive dialogue
and action on issues of policy, practice, theory and research
that lie at the intersection of the interests of labor,
management, government, neutrals and scholars, in the
airline industry. Our scope includes the global airline
industry, with attention to traditional airlines, the new
emerging low cost sector, and to a lesser extent, regional
and charter airlines.
Structure and Operations: This Council will have a
minimum of three co-chairs representing the management,
labor and neutral, academic and policy-making
communities. Each co-chair will serve for a two-year term,
after which time new co-chairs will be selected by the
Council membership.
Airline Industry Council:
Initial Leadership
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Academic co-chairs
– Thomas Kochan, MIT
– Jody Hoffer Gittell, Brandeis University
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Labor co-chair
– Pat Friend, Association of Flight Attendants
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Management co-chair
– Rob DeLucia, Airline Industrial Relations
Conference
Airline Industry Council:
Initial Members
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Please see handout for full roster of
members
MIT Global Airline Program:
Our Research Partner
MIT Global Airline
Industry Program
Airline Industry
Council
MIT Global Airline Industry Program:
Overview
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Airline scheduling (Cynthia Barnhardt)
Fleet planning (John Hansman)
Airport management (Amedeo Odoni)
Safety and security (Arnie Barnett)
Coalitions and alliances (JP Clarke)
Marketing and fare structures (Peter Belobaba)
Labor and HRM (JH Gittell, Tom Kochan,
Robert McKersie, Andrew von Nordenflycht)
MIT Global Airline Industry Program:
Board of Advisors
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Includes members from management, labor
and government
Members with a particular interest in labor
and HR issues
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Bernhard Rikartsen, SAS
Seth Rosen, ALPA
Al Spain, JetBlue
Mike Campbell, former Continental Airlines
Patricia Friend, AFA
Steve Sleigh, IAM
MIT Global Airline Industry Program:
Overview of Labor/HR research
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Mutual Gains or Zero Sum? (ILRR article)
Labor Contract Negotiations in the Airline
Industry (Monthly Labor Review article)
Southwest Airlines Way: Using the Power of
Relationships to Achieve High Performance
Policy Recommendations (white paper)
Out of the Ashes (New Labor Forum paper)
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Now launching: Study of Low Cost Airlines
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Low Cost Sector Growing World Wide
Canada (7, 1 in 2004)
Europe (60, 3 in 2004)
Aer Arann
Air 2000
Air Baltic
Air Berlin
Air Finland
Air Luxor Lite
USA (19, 4 in 2003/2004)
Air Polonia
AirTran
Spirit Airlines
Air Scotland
Allegiant Air
Song Air
Air Southwest
Sun Country
American West
USA 3000 Airlines Air Wales
ATA
Vacation Express Alpi Eagles
Frontier Airlines
Interstate Jet
Ted
Azzurra Air
CanJet
HMY Airways
JetsGo Airlines
Tango Airlines
Westjet
Zip
Canada West
JetBlue Airways
Midwest Express
Pan American
Southeast Airlines
Southwest Airlines
Baboo
Basiq Air
Bexx Air
BMI Baby
British European
BudgetAir
Corendon
Deutsche BA
EasyJet
Evolavia
Excel Airways
Fairline Austria
Independence
Virgin USA
Fare4U
German Wings
Germania Express
Globespan
Hapag Lloyd Express
Hellas Jet
Helvetic Airways
Iceland Express
Ryanair
Snalskjutsen
SnowFlake Airlines
Sterling
Sun Express
Swedline
ThomsonFly
V Bird
Virgin Express
VLM Airlines
VolareWeb
Windjet Vola
Smart Wings
Wizz Air
Hop
Asia/Pacific (20, 8 in 2004)
Africa (2)
1Time
Kulula
South America (3)
Bra
Gol
U Air
Source: http://www.etn.nl/lcostair.htm, airline news
Air Arabia
Air Asia
Air Deccan
Athena Air Services
Citilink
Freedom Air
Lion Airways
One-Two-Go
Skymark Airlines
Skynet Asia Airways
ValuAir
Virgin Blue
Air Blue
Air One
BackpackersXpress
Jetstar
Nok Air
Pacific Blue
SkyAsia
Tiger Airways
Total 111 LCCs, 16 started in 2003/2004
Overview of U.S. market
LEGACY AIRLINES
AA – American Airlines
UA – United Air Lines
DL – Delta Air Lines
NW – Northwest Airlines
CO – Continental Airlines
US – US Airways
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Carried 73% of US
passenger RPMs in
2003.
LOW COST AIRLINES
SWA – Southwest Airlines
AW – America West Airlines
ALA – Alaska Airlines
ATA – American Trans Air
JB – JetBlue Airways
ATR – AirTran Airways
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Carried 18% of US
passenger RPMs in 2003.
Analysis by Peter Belobaba and Gregory Zerbib of MIT.
Change in Market Share
Change in Passengers Enplaned -- 2003 vs. 2000
30,000,000
20,000,000
10,000,000
0
-10,000,000
-20,000,000
-30,000,000
-40,000,000
-50,000,000
-60,000,000
-70,000,000
-80,000,000
TOTAL
LEGACY
LOW COST
Legacy carriers have lost traffic each year since 2000;
Low cost traffic has grown every year
Annual % Change in RPMs
15
10
5
TOTAL
%
LEGACY
LOW COST
0
2000
-5
-10
2001
2002
2003
CO, NW and AA only legacy carriers to
post quarterly operating profits since 2001
Operating Margin / Legacy Carriers
30%
20%
10%
19
99
19 1
99
19 2
99
19 3
99
20 4
00
20 1
00
20 2
00
20 3
00
20 4
01
20 1
01
2
20
01
20 3
01
20 4
02
20 1
02
20 2
02
20 3
02
20 4
03
20 1
03
20 2
03
20 3
03
4
0%
-10%
AA
CO
DL
NW
-20%
UA
US
-30%
-40%
-50%
-60%
SWA and JB consistently profitable, while ATA, AW
and ALA have struggled to post operating profits
Operating Margin / Low Cost Carriers
30%
20%
10%
0%
%
-10%
-20%
-30%
-40%
-50%
-60%
AS
AW
ATA
SWA
JB
ATR
Southwest and JetBlue market caps are
high relative to their market share
Monthly RPM Share 08/04
25%
20%
American
United
Delta
15%
Northwest
10%
Continental
Southwest
US Airways
5%
American West
Alaska
ATA
JetBlue
0%
0%
10%
20%
30%
Relative Market Cap 09/04
Source: Yahoo! Finance and airline traffic reports
40%
50%
60%
70%
We don’t know enough about the
low cost sector, but suspect that
in general it is:
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Less unionized (with exception of SWA
and ATA)
Lower seniority workforce
Lower pay, fewer benefits
Better financed
Newer aircraft
Questions about low cost competition
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Will low cost airlines develop sustainable
positive labor relations or follow same pattern
as legacy airlines?
How can legacy airlines address low cost
competition?
What are the most productive approaches?
Which approaches do not work?