I just don’t see how fuel costs can be discounted. If fuel is 15% of an airline’s cost and a hedge expires in a rapidly escalating market, fuel can suddenly command 20-25% of the cost. Maybe they can see it coming, but they cannot do anything about it.

There are so many variables nobody can predict which all have massive costs attached to them. For example, an FAA action such as the ones against Southwest and American can cost millions per day in lost revenue, added costs, and poor publicity.

What system can compensate for a runway or airport closure at an airline’s hub during a morning or evening push? Suddenly 100 flights have to divert elsewhere, with all the associated costs and disruption to the system. The ripple effects of this sort of thing can last for days.

Delta’s EPS is negative $10 at the moments as I recall. I’m not sure any efficiency program can fix losses on that scale.

Contrary to conventional wisdom, the biggest problem facing the airlines is not fuel, labor, hub schedules or even ATC. The airline’s biggest problem is production variance driven by unmanaged complexity.

In reality, the airline curb to curb production process is a highly complex, interdependent flow of materials where, today, each of the elements in this multi dimensional material flow is managed independently, without regard to system effects. This leads to 40% to 50% of the airline product delivered late, which represents a huge production problem punctuated by high costs, low quality and dismal utilization.

Given this perspective, the application of “just-in-time” manufacturing processes can yield rapid (2 years) and significant (hundreds of millions) bottom line benefits to network airlines.

Airlines must tactically work to move the right part, to the right place, at the right time. And it must do this constantly, hour after hour, day after day, month after month. Starting with the movement of their aircraft, the airline’s primary production process, airlines must recapture tactical control of their curb to curb production process.

The payoff from this approach is huge. As can be seen below, the cost for just crews, fuel, defects and lost opportunity cost to accept an unacceptable amount of “variance” (17 minutes per flight) for a medium size hub airline (1,500 flights per day) is staggering.
Attila™ Airline Cost of Poor Quality Analysis
Crew, Fuel, Defect and Lost Productivity Costs

Annual Crew Buffer Cost $54,293,750
Annual Defect Rework Cost $21,352,500
Annual Overnight Rework Cost $32,028,750
Annual Fuel Buffer Cost $313,671,875
Annual Aircraft Lost Productivity Cost
$1,559,006,250
Total Annual Buffer/Rework Cost
$1,980,353,125

Add in the other “just-in-case” buffers airlines add into their operations, as well as the negative effects to business productivity / GDP and the overall costs gets very large, very fast.

And while most continue to blame ATC, weather, fuel and a host of other problems, I have realized that most of this $2 Billion cost is actually production variance. Further, like Toyota, GM, Ford and others who have applied modern production techniques, 50% of these “variance” costs can be removed by the rethinking of the airline’s internal processes.

Ultimately, the airlines must take responsibility for the success of their business operations. Airlines must understand and verbalize that FAA is not relevant in the current discussion of delays and congestion. FAA’s solution is 10 years away at best.

Finally, the solution lies in Operational Excellence. Following in the footsteps of Wal-Mart, Toyota and others, within 2 to 3 years airlines have the ability to improve on time arrival zero to greater than 75%, while decreasing block time 5 minutes per flight. And airlines can do this with no change in the weather or ATC system.

Michael Baiada

The AFA MEC Chairman at United was on a real power trip. He was out to prove that he could be stronger than the CEO.

If Greenwald made a concession to him, he would demand more. Greenwald would take one step forward and the AFA Chairman would take two steps back. Every employee group was on board but the F/A’s.

It would have shortened the pay concessions for the whole airline from five years and nine months to just five years. Everyone endured nine months additional pay concessions becuse the front line employees (F/A’s) were not owners.

I don’t now how much you know about Mr. Greenwald, but he is a very smart businessman and knew that was not a good idea and did everything he could to bring the F/A’s on board.

We will never know if their participation would have made a difference, but don’t believe that the F/A’s were prevented from joining the ESOP by the company.

Oh well that is history and now we have Tilton, who would not have even cared if the F/A’s were a part of the ESOP.

We can thank the IAM for Goodwin, the weakest CEO in airline history. We we can thank Goodwin and the IAM President Peterpaul for the failed attempt to buy US Airways the first time.

Goodwin and the flunkies that Steve Wolfe left behind ran United into bankruptcy.

But the way United is headed even now, I seriously wonder whether the F/A involvement in the ESOP would have made much difference.

Management grabbed the first opportunity possivble to pass all those pension costs on to the taxpayers as well.

As Bill said a minute ago too, this kind of behavior is reprehensible.

And even with all these special deals, they’re still in deep toruble … and giving the executives milions for their talents.

Southwest does well because they hedged their fuel contracts and paid less than other airlines for a long time. For this year they are hedged at $49/barrel. But even Southwest’s management admits that these contracts will soon end and they’ll be in the same boat as everyone else.

Sure, they have the benefits of good management, single aircraft type, and so on. But in the end, fuel prices will claim every airline unless we start seeing $800 fares for an L.A. to Las Vegas flight, *or* lower oil prices.

Just my $0.02. :)

Following close on the heels of your point was one someone asked me in a private e-mail a minute ago, “So you think if the employees ran everything at United it would all work out? They had their chance and they blew it.”

No, I don’t honestly think airline management needs to be this black or white … them or us. United management however is a great case study for how to turn thousands of employees into anti-company people, I think.

As you rightly point out, despite the critics, Southwest continues to make money, year after year. And by and large, customers like flying on Southwest because they get us there pretty much on time.

These days, I don’t really expect much more than that anyway.