MIAMI — My analysis last week about Southwest’s IT management woes and labor battles certainly drew a lot of ire from members of the union, who claimed that I had gotten my analysis wrong with several of my claims.
This piece will explore the backing for some of my claims in more detail and provide a deeper dive into some of the claims made in that piece.
First, I want to set the record straight on the publication of the piece, and what was apparently a sticking point for many commenters — the fact that all four unions issued a vote of no confidence (VONC) whereas the piece only mentioned the pilots and the maintenance.
There’s a very simple explanation for that, and no it doesn’t start and end with me as an unethical journalist. The piece was written Tuesday morning and early afternoon, at which point only the pilots and mechanics had voted no confidence. The piece was out of my hands before the VONC and we updated the story as soon as the VONC came up. I’ll have more on the VONC in this piece, but I’ll start with one of the other points of contention.
Southwest’s pilots are highly productive based on the metric that they care about but they’re getting less productive
The claim that I made was that Southwest’s pilots are the most expensive in the U.S. airline industry as of 2015, and that accordingly (with all new contracts except those of United Airlines’ pilots taken into account), a new contract that gives them a substantial raise over current pay rates. I’ll certainly dive into that data later on, but first I want to discuss a frequent counter argument brought up by the more measured and reasonable amongst my pilot critics.
It is indeed true that Southwest’s pilots are incredibly productive in terms of block hours flown per month, ranking second in the industry behind pilots at Virgin America as outlined in the chart below. And intuitively, it makes sense that that would be the number that Southwest’s pilots care the most about. At the end of the day, to a pilot the number of hours a pilot works in a month is the thing that determines his or her quality of life.
But while it is true that Southwest’s pilots are still incredibly productive, they have been getting less productive over the last decade, even by the metric that they prefer to use. In fact, that 57.8 hour figure is down 11.1% versus 2006, and average annual total compensation (wages, benefits, and payroll taxes) for a Southwest pilot went from $219,569 to $305,731.
So, the total annual compensation package for the average Southwest pilot increased by 39.2% for 11.1% less work. Most Americans in any profession, would kill for that kind of compensation growth relative to reduced work requirements.
Southwest’s pilots already get a raise every year – they’re asking for more compensation relative to their peers
It’s important to contextualize exactly what Southwest’s pilots (or any pilot union) is asking for when they ask for an increase in their contractual compensation. Southwest’s first officers and captains already get a raise each year by virtue of gaining an additional year of experience. This is how union contracts where pay is based on seniority work.
For example, over the first 12 years of their career (years 1-12), Southwest’s first officers get an average pay bump each year of 8.4%, though the growth is certainly front loaded. Meanwhile captains get a relatively anemic 1.03% raise (years 1-12) but even there that’s above inflation. What Southwest’s pilots are arguing is that in addition to these scheduled raises (though older pilots don’t get a bump), they also deserve a raise of more than 30% by 2020 as per SWAPA’s existing proposal.
The justification presented is that pilots at Southwest’s “peer” airlines have been given raises that push their hourly compensation above that of Southwest pilots, and that Southwest’s pilots are the most productive in the industry.
But Southwest’s pilots aren’t the most productive pilots in the country in terms of ASMs, and that matters
The problem with this argument is that Southwest’s pilots aren’t the most efficient in the country when it comes to producing available seat miles or the primary units of capacity used in the global airline industry. The chart below outlines ASMs produced per dollar of pilot compensation, and by this measure of productivity, Southwest’s pilots rank dead last in the U.S. airline industry.
Pretty much every pilot I talked to in the wake of my analysis last Wednesday and many of our esteemed, and less esteemed (e.g. everyone that alleged I was somehow corrupt and/or paid for by Southwest management) commenters responded by saying some variation of “ASMs don’t matter to this debate.” Ah but they do, in fact they matter a great deal.
One of the biggest fallacies in this country in how we discuss work and compensation is the notion that somehow wage rates are tied to input, or hours worked. This is a fallacy that we have Karl Marx and his labor theory of value to thank for, because the reality is that wage rates are instead determined by output, i.e. how much value is generated for the company as a result of your work.
For labor, that is a direct input in terms of cost of good sold like pilots flying airplanes, the question becomes how many revenue producing units do you generate.
And that’s why ASMs are important — airlines don’t sell airfares per block hour, they price against an ASM baseline. So at the end of the day, each dollar of Southwest’s pilot compensation generates less revenue potential for the company than at any other US airline. And that is today – with a 30% raise they’ll be even further away from the pack (United’s new deal brings it in line with American. Southwest’s pilots are the least productive in terms of generating revenue producing units in the U.S. airline industry right now – with a 30% raise that gap will only increase.
Intuitively this makes sense. The carriers ahead of Southwest either pay their pilots way less (Spirit, Allegiant, Frontier) or pay their pilots a similar amount to fly much larger airplanes (both in the case of Hawaiian). In fact if I had to summarize the above economic argument with a one liner, it’s that Southwest pilots want to be paid Boeing 777 wages to fly Boeing 737s.
The VONC matters but I cannot endorse it
A VONC from 38,000 of an airline’s employees clearly matters, as one of the core jobs of an executive team is to maintain solid relations and maximize the productivity of the employees at large. But the problem with a union making such a move publicly is that it sets a dangerous precedent. SWAPA and the other unions maintain that the VONC had nothing to do with the contract negotiations, and I am willing to be charitable and grant that their intention is to signal worry about Southwest’s IT situation.
I will also confess to being highly critical of Southwest’s IT management. But in practice, it becomes another point of leverage in the contract negotiations.
And on those grounds, I don’t really endorse the VONC. At the end of the days, there is a strong moral hazard in allowing a group of employees to vote on the continuing employment of the people that set their wages.
The adverse effect of this moral hazard is seen most acutely in the case of public sector unions being able to vote on (and affect the process by which) their bosses are chosen, and in the worst cases has led to the spiral of crushing public sector pensions that bankrupted Detroit and Puerto Rico, and threatens numerous local and state governments around the country.
So on principle, I am highly skeptical of the notion of unions voting out their bosses, and thus cannot endorse the VONC on principle.