Captain John Prater, President
Air Line Pilots Association, Int’l
JPMorgan Aviation and Transportation Conference
New York, NY
March 21, 2007
I’m honored to be here today and provide the views of our 60,000 pilot members. As the newly elected president of ALPA, I want to thank Jamie Baker, and all at JPMorgan, for the invitation.
I’m proud to be an employee working in one of the most important businesses in our country and the world. The air transportation system is a key part of our country’s economy and our enjoyment. It’s both a financial engine and the engine that brings families closer together for visits and vacations. But it’s not easily understood even by those of us working in it.
Let me ask you a few questions to illustrate my point.
How many of you here today are million-mile flyers? Raise your hand. How many half-million-mile flyers? 100,000? If you didn’t raise your hand, you must be in the John Madden fan club or own your own jets. You can’t do your job in the 21st century economy if you don’t travel by air.
Let me ask another question. How many of you have ever handed over your own children to an airline or watched your spouse and kids board after you have dropped them off, trusting that they would arrive safely at camp, your parents’ house, or some other destination?
That’s an incredible act of trust: handing over your loved ones to total strangers – strangers who will take them in a narrow aluminum tube at 30,000 feet for thousands of miles – knowing that they will arrive safe and sound… every time.
And let me ask and answer one final question: Why do you do that? You do that because you instinctively trust the airline – and most importantly, the airline pilots flying their airliner – to perform flawlessly every time. Whether for business or pleasure, you trust that if something goes wrong or the weather suddenly turns bad, a pilot, and only a pilot, can and will ensure that your flight is safe.
As pilots, we take our responsibilities seriously, and I ask you to trust what I’m going to say to you today as much as you trust me when I’m at the controls of that triple 7 you and your family fly on to Europe.
I’m the president of the largest pilot union in the world, including the pilots of most airlines in North America. I’m their spokesperson, but this message isn’t just from me—it comes to you from all 60,000 of us.
The message is this—our nation’s airline pilots have endured much and sacrificed deeply for more than five years to save our companies and our industry. Now that the airlines are recovering and profits are returning, we will demand a return on our investment. And we will demand it sooner rather than later.
Why do I say that? Because companies need employees to participate in their recovery to be successful, we need to get labor relations on a different track than they are now on. '
We made those concessions based on a worst-possible-case scenario presented by management and with a bankruptcy court judge promising to make decisions about our company and our jobs if we did not move and move quickly. In fact, airlines recovered financially much more quickly than the scenarios painted in bankruptcy, and the concessionary agreements don’t have to last as long as managements insisted.
Today, these same managements have signaled that the industry and their companies have turned the corner—they have already taken their bonuses, raises, and stock options for their performance. Well, our pilots did a darn good job, too, and it’s our time and our turn now.
Why should you care?
I believe that the airlines that treat their employees as legitimate stakeholders and real partners in the recovery will flourish in the coming years and that those who do not will struggle to survive.
There’s your stock tip of the day.
I will admit that I’m not a numbers guy—my degree is in meteorology. But I do know that to forecast the future of weather you need to look at past patterns, trends, and experience, similar to what a lot of you here in this room do.
Let me start by taking a look back in time to Sept. 10, 2001. Let’s take a look at the condition of the U.S. airline industry leading up to the attacks of 9/11.
We were at the end of the .com bubble, and the economy was beginning to weaken; however, we may or may not have gone into a mild recession, who knows?
But at that time, the airlines were generally strong; they had just enjoyed years of solid profitability driven by a strong revenue environment with many business travelers paying full fares; and yes, as you remember, fuel costs were quite low.
I know I won’t get any disagreement from anyone in this room that 9/11 certainly was the triggering event that sent our industry into a spiral.
The reason none of you would disagree with me is because of the tremendous turnaround from all-green profit bars to all-red profit bars.
In the first years following 9/11, the lingering effect on revenue, combined with the growth of low-cost carriers, the Iraq war, and too much capacity, pushed the industry into a period of unprecedented losses. Compounding the problem in later years were fuel costs that were rising faster than a helium balloon.
But now, at the end of that slide, you can see that fuel costs, while still at historically high levels, have moderated somewhat this year. That’s good news for all of us, particularly given the positive revenue developments of the last 12 to 18 months. We understand the volatility of fuel markets in today’s world; however, the industry has finally demonstrated the ability to pass on some of the burden to consumers.
Overall, the airline industry has hit bottom and is clearly coming back up. In fact, the industry posted a profit in 2006 for the first time in five years, and as I’m sure you know, most of you and our internal analysts estimate a solid profit for 2007 as depicted on this slide.
One might ask how an industry battered this badly, with many of its largest corporations thrown into Chapter 11, could possibly survive. Well, I have the answer, just in case you missed it.
This industry survived on the backs of labor. U.S. airline labor has given more than $12 billion in annual labor concessions, and the pilots alone have given $5 billion per year to save their companies.
Putting this into real terms for a line pilot, many pilots saw their income drop by 50 percent or more as the result of wage cuts and position downgrades. As this slides shows, this is exactly what happened to some US Airways pilots. To make matters exponentially worse, these same US Airways pilots and many other pilots have lost 30, 40, even 50 percent of their retirement.
Remember those pilots we were talking about a few moments ago with whom you were entrusting your family? Are they smart—yes, are they enlightened—yes, will they do the right thing—yes, and did we do it because we realized the survival of our companies was at stake—yes.
But did we enjoy it? The answer is no. Are we going to continue to work at these rates forever? No. Is this a total restructuring of labor costs in this industry? Listen carefully, NO!
On Dec. 7, 1941, naval fleets and air forces from the Empire of Japan attacked the United States at our naval port at Pearl Harbor, Hawaii. Suddenly, and completely, we were a nation at war.
The total mobilization of the economic, governmental, and social engines of American life was the key to our overwhelming force and our defeat of the Axis. The cost in blood, treasure, and happiness was astronomical. Among sacrifices citizens made were rationing of oil, food, household products, clothing, and other materials vital to the war effort. Wage and price controls eroded the standard of living that Americans had become accustomed to.
The war required extreme sacrifice.
Now, do you think that after the war ended and the troops began to return to their previous lives, a new president, Harry Truman, announced to the nation that this is the new normal? That great war we waged and won has set a new baseline for the American Way of Life–we cannot and should not expect a return to the way things were. That rationing will continue. That wage and price controls will continue.
Of course not!
Instead, what Truman and his successor, Dwight David Eisenhower, promoted to a war-weary nation was a dramatic investment in the World War Two generation–the greatest generation if you believe Tom Brokaw.
The G.I. Bill sent veterans to school and helped them buy houses. The Interstate Highway System built an economic infrastructure beyond compare. Government and business were on the side of the working men and women who made victory possible.
In case you aren’t staying with me, I will make my comparison obvious. On Sept. 11, 2001, terrorists used airliners to attack the United States in New York City, Washington, D.C., and Pennsylvania. While our nation responded with its war on terror, the airline industry suffered grievously.
Faced with the horror of this situation, airline labor responded with deep sacrifices to save our airlines and our industry.
Now that era is over. Airline pilots and the rest of airline workers are coming off the ration cards. We are demanding our share of the companies we helped save and the strong profits we helped make possible.
The question that you must have answered is what do pilots want? Let me give you some broad areas that need to be addressed.
First, pilots need to be consulted, and management needs to be held accountable.
What do I mean by that? Recently, American Airlines acknowledged that it erred by bidding on new China routes before obtaining an agreement with pilots over the important work rule changes to their contract that are required for them to fly ultra-long-range flights.
Continental management bargained for a new crew scheduling and bidding system that saves it millions of dollars per year with promises that it would work to benefit pilots by certain dates. It still isn’t performing as promised.
Pilots are angry that their careers have been turned upside down, and managements simply will not get the assistance, and cooperation, that they need without consulting us in advance, to reach mutually beneficial solutions. It’s just common sense and respect.
Second, management has to acknowledge and address the degradation in pilots’ quality of work life.
The bankruptcy era not only forced employees to work longer hours for less pay and fewer benefits, but it also furloughed many and required others to move or commute to maintain their jobs.
But this issue is larger than pilots’ quality of work life. If you fly in the back of an airplane, I ask you to consider that the pilot in command may have flown 14, 15, or 16 hours a day, for 15, 16, or 17 days a month. Pilots are fatigued.
Management must address scheduling, flight and duty time, and staffing.
Third, employees have to share in the improvement in financial performance. And by that, I mean pilots deserve more than the inadequate profit-sharing plans that give back a very small percentage of the concessions made.
In addition to working much harder, many pilots lost 50 percent of their income, sacrificed their retirement plans, and are now paying much more for health coverage.
At United, American, and elsewhere, managers are receiving raises and gain sharing rewards. These circumstances caused United pilots to initiate a loud and forceful contract campaign called FIN for Fix It Now, rather than wait for the end of their bankruptcy-dictated contract in December 2009. To their credit, management is now sitting down with pilots. We are waiting to see if they will adequately address our concerns. The sooner it is fixed, the better!
Management of US Airways was trying to land its next trophy by buying another airline, rather than completing the merger of US Airways and America West and running the current airline on a fully integrated basis that delivers on the promises of lower costs and maximized profits. The latter course also requires serious bargaining of a single contract with pilots.
In general, management must sit down with ALPA now, admit that company performance is better than predicted during bankruptcy, and share the results of more favorable financial performance, valuations, and profits.
You may ask, are pilots willing to work with management to work things out? The answer is “of course.” But management has to come to the table with the understanding that workers’ sacrifices were not, and will not be, permanent. Management must quickly start to return those concessions in a way that works both for the company and for the pilots.
Now, let me end on a positive note. As ALPA’s new president, I have a reputation of being a tough labor leader, which I have earned over the years. But I also have the reputation of being a fair and prudent businessman, ready to meet at any time and any place with a management willing to work with its pilots for the betterment of all.
I look forward to working with the leaders of this great industry to make it better for us all. Thank you again for the invitation to speak, and I will be happy to answer any questions.