Dinosaur Airlines

This weekend Northwest Airlines (NWA) mechanics went on strike rather than agree to wage concessions proposed by NWA to try to return the airline to profitability. It is the first major disruption to air travel in the USA since 1998.

The 4,430 members of the Aircraft Mechanics Fraternal Association were asked to take $176 million in wage cuts from their current $36.39/hour base. Earlier the pilots union had agreed to $265 million in cuts and salaried workers to $35 million. NWA appears poised to whether the storm, having hired 1500 substitute mechanics and 1100 substitute flight attendants, in case that union walked out in sympathy. Neither the pilots nor flight attendants are expected to walk out in a show of solidarity with the mechanics.

NWA has indicated that if it is not able to wring costs out of the system, it will likely file for bankruptcy. Delta is making similar warnings and United is continuing to operate in bankruptcy. Collectively, NWA, Delta, American and United have lost $25 billion in operating losses from 2001 to 2004. Compare that to Southwest which has made over $2 billion during the same period of time. AirTrans and JetBlue, two start-up carriers have also been profitable during the past four years.

Let’s compare Southwest with Northwest. SWA is able to carry 71 million passengers with 31,000 employees, while NWA requires 40,000 to carry 55 million. Labor costs are 3.3 cents/mile for SWA while NWA is at 5.0 cents/mile. Both pay their employees about the same, although SWA’s make 6% more. SWA runs their planes for 11.2 hours/day while NWA operates theirs only 8.6 hours/day.

It all gets down to efficiency and constantly reinventing yourself as a business, something that the legacy airlines have not been able to do. It is a painful process to go thru, but unless you do so you’ll end dying painfully as these legacy airlines are doing.

It is the same thing with our agurbs® and the businesses that are located in them. The future is arriving much more quickly in today’s environment. Those that learn to adapt will build a better future for their citizens.