| PENSION PROTECTION
PENSION PLANS PENSION FACTS SERVICES |
So you work for an airline. Chances are you may be getting somewhat air sick, what with the cutbacks, layoffs, givebacks, bankruptcies, speedups, slowdowns, mergers, bomb plots and general chaos of the industry. And after a rough day confronting irate passengers, maintenance snafus, weather delays and rebooking nightmares, you get a notice or see on the news that your pension may be “amended.” Airline workers are angry, and with good reason. It’s challenging enough working in a fast-changing industry, but to fly into a pension-and-benefit storm at the end of the day is just too much.
That said, you can’t not pay attention to what’s happening. Chances are you belong to one of the many airline unions who negotiate pensions, benefits and wages on your behalf, and you want simply to know what’s going on. It’s the business you may have spent your life in and your financial future depends on those talks – be they bankruptcy, buyout, merger, or just hard-nose union negotiations.
Despite an ongoing industry shakeout, the market for airline travel remains huge –domestic and international, passenger and freight, business and leisure. Deregulation, begun in the United States in 1978, has lowered the cost of airline tickets dramatically.
Over the last 30 years, government owned or supported airlines have, in fits and starts, moved toward independent, for-profit business models. Likewise, airline operations have been increasingly deregulated, giving airlines the right to set their own routes and fares.
Nonetheless, government regulation of airlines – although varying region by region and country by country – remains high, especially in matters of maintenance and safety.
Gradual deregulation has brought lower fares and sometimes quite dramatic increases in demand and traffic. However, as a whole, airlines are built on leveraged credit and thus remain highly sensitive to the economy both in the cost of funds and in demand for flights.
For a host of reasons, the airline industry is cyclical as well. Forecasting demand and ordering planes requires long-term projections and ramp-ups which, in turn, often lead to overcapacity, devastating competition and razor-thin profit margins.
Since World War II, hundreds of airlines have gone belly up or been sold off.
What’s more, studies have shown that, without explicit and implicit government subsidies, airlines by-and-large could not survive at all. They make a small return in good times, and go massively into the red when the economy, or specifically airline travel, hits rough weather as it did after 9/11.
For an airline, profitability in a good year hovers around 2-3 percent.
Airlines are notoriously tricky to manage. Relying on sophisticated booking systems and differential pricing, operators still struggle to maintain a sufficient yields and load factors on their flights without driving potential travelers off to that ever-present competitor, whose fares and availability are today instantly accessible on the nearest computer screen.
In the early days, airlines took off by “carrying the mail” under contract to the U.S. Post Office. They were regulated to assure profit levels sufficient to keep the planes flying. Routes were allocated and could not be challenged by non-official entrants. As passenger traffic became more important, fares also were regulated to insulate the fragile airlines from competition which policymakers thought would bring the whole venture crashing down. Airlines could not survive without protection. They were simply not viable.
Today, there are many analysts who echo that theme. The “airline wars” continue with legacy airlines competing against lower-cost and undercapitalized upstarts. Global travel is a reality with profitable long-range routes the subject of international political squabbles.
De-regulation and the so-called “Open Skies” initiative (which would allow airlines from different countries to compete on price and service anywhere) are lowering the barriers to entry at the same time that legacy airlines are forced to match fares. Regional alliances have spring up to allow airlines to pool resources and, sometimes, skirt regulatory jurisdictions. And government regulators and politicians are intensely lobbied to make decisions favoring one side or the other in corporate and labor disputes.
The airline industry has always been a fragile business. Today it’s more important than ever to watch the vapor trails. That’s the point of this website. We want to give you the information, contacts and tools you need, as airline workers, to understand and protect your own financial future.
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