I read Vinay Bhaskara’s analysis titled “Southwest’s Pilots Are the Highest Paid in the U.S. Airline Industry Per-ASM” on August 8, a follow-up to “Southwest’s IT Reality Bytes: Pilots vs Management?” on August 3. As the chairman of the Southwest Airlines Pilots’ Association (SWAPA) Negotiating Committee, I felt obligated to address many of the inaccuracies Mr. Bhaskara puts forth.
Mr. Bhaskara cites MIT data which ends in 2015. Basing any analysis on 2015 results ignores the fundamental changes in the market for pilot services that have occurred at the end of last year and in 2016.
In January 2016, United Airlines signed a two-year extension which immediately increased their pilot compensation 13%. This year, American Airlines management unilaterally added a profit sharing bonus of 5% of pretax profits for its employees. At Delta, management offered raises that essentially mirror SWAPA’s opening asks of Southwest Airlines.
Mr. Bhaskara uses out-of-date information when he claims that we are seeking Boeing 777 wages to fly a Boeing 737. United’s industry-leading pay (not including cargo carriers) for the Boeing 777 is $305.39 per block hour as of February 2016, and rises to $314.56 on January 1, 2017. The top Southwest pay rate is equivalent to $218.06 per hour. Our current ask in our fourth year of negotiations is for $257.31 per block hour to fly the Boeing 737.
Outside the “Big Four” airlines, the story is equally compelling. UPS pilots are voting on an agreement that will pay captains $300 per hour upon ratification. Ultra-Low Cost Carrier Allegiant pilots recently ratified a deal, which will pay their pilots more than current Southwest pilot pay rates next year. And Spirit Airlines’ management currently has an offer on the table to include a retirement plan that far exceeds ours.
None of these developments, which drive the market for pilot services higher, are captured on the MIT Airline website, but even its out-of-date data shows Southwest behind the industry. The following should be used to most accurately compare us to our industry peers:
2015 Total Cockpit Cost Per Block Hour – All Aircraft
- American: $1,111
- Delta: $1,104
- United: $1,100 (This does not reflect United’s current rates.)
- Hawaiian: $957
- Southwest: $924
2015 Total Cockpit Cost Per Block Hour – Small Narrow Body
- Delta: $1,003
- United: $925 (This does not reflect United’s current rates.)
- Southwest: $919
2015 Total Cockpit Cost Per Block Hour – Large Narrow Body (This would include our 737-800s only.)
- American: $1,049
- Delta: $1,022
- Southwest: $953
With that data in mind, I want to review five important distinctions which are necessary to consider when comparing pilot costs between airlines and which Mr. Bhaskara failed to address.
First, it is important to recognize the impact that aircraft size and mission have on the production of ASM’s at each airline. Wide body aircraft typically fly international flights to Asia and Europe. Narrow body aircraft tend to fly shorter distances in the North American region. Wide body aircraft have many more seats and fly very long distances producing lots of ASMs. Southwest does not have wide body aircraft to produce all of these ASMs. Wide body pilot CASM (cost per ASM or unit cost), as a result, is lower than narrow body due to the greater number of seats to spread these costs across.
This is a business decision made by management. The proper way to analyze pilot costs at Southwest is to compare narrow body aircraft across airlines. To look at total fleet by airline is not proper as it brings in wide body aircraft which is an apples-to-oranges comparison.
Second, pilot productivity is measured on a block hour basis, not total compensation, and also takes into account the inherent career risk from each additional block hour flown as well as the exposure that additional inherently more risky takeoffs and landings present. Also, Mr. Bhaskara fails to take into account two other important factors with respect to productivity.
First, while the chart he uses does show Southwest trailing Virgin America in productivity, Virgin America was recently purchased by Alaska Airlines and as it is integrated into Alaska’s network, that will once again place Southwest at number one. Secondly, the reduction in the Southwest Pilot’s productivity over the preceding years was heavily influenced by the integration of AirTran Airways.
During the years included in the MIT study, Southwest transitioned more than 1,700 AirTran pilots through training which produced a dramatic reduction of productivity due to pilot training/transition requirements and reconciling and optimizing flight schedules. Our analysis shows Southwest pilot block hours rebounding in 2015 and we expect that trend to continue this year.
Measuring pilot costs on the basis of total pilot wages and salaries, benefits, and payroll taxes per employee equivalent misses a very important metric — how productive the pilot group is. Southwest pilots are more productive on a block hour basis to earn the wages cited in Mr. Bhaskara’s article.
Moreover, the data MIT uses to calculate pilot compensation is derived from DOT Form 41 schedule P5.2. For Southwest, this includes profit sharing since our profit sharing program is unique in that it is a qualified retirement plan. Airlines such as Delta, United, and American Airlines report profit sharing payments to its employees on schedule P6. Therefore, profit sharing expense for these pilots is not included in the pilot totals as analyzed by the Airline Data Project since they do not include the schedule P6 additions for profit sharing.
So, the figures Mr. Bhaskara uses for Delta, United, and American understate pilot compensation at those airlines. This is not an insignificant amount. For 2015, Delta pilots received a profit sharing payment equal to 21.46% of pay, and for United it was 15.6% of pay.
Third, Mr. Bhaskara has a very poor understanding of how pilot compensation works and the reasoning behind annual step increases. As is true with our counterparts at OALs, our pilots are paid based on their longevity at their airline, and Southwest pilot pay tops out at 12 years as a captain. Roughly half of Southwest pilots have worked for our company for more than 12 years which means they have not received an increase in pay since 2011.
First officers start at 26.4% of 12-year captain pay and many take a 50% pay cut or more from their previous job to come to work here. Today, our first year pilot is paid 34.7% below the average new hire at United, Delta, or American.
Like most carriers, first officer pay nearly doubles by the fifth year to compensate for the pay cut they took to come here, but the rates from step five to step 12 average just 2.37% per year, less than the historic rate of inflation. Furthermore, with only one airframe and a relatively young pilot force, long upgrades and the inability to fly higher paying equipment will limit make our career earnings well below our peers.
Fourth, evaluating pilot costs on a unit basis per ASM (CASM) between airlines based upon similar equipment categories is the most appropriate apples-to-apples comparison of the cost of pilot contracts and airline operations. My negotiating team has compared pilot CASM on all narrow body (including 757 domestic aircraft) at Southwest, Delta, United, and American using the SWAPA Platform proposal, the current Delta management proposal, and the existing American and United pilot agreements.
The result? The current SWAPA proposal results in Southwest pilot CASM being approximately 0% to 5% lower than American, 5% to 10% lower than United and 15% to 20% lower than Delta between 2016 and 2021.
Finally, when evaluating revenue and costs across airlines per ASM, it is important to adjust for the varied stage lengths to derive a normalized comparison. Shorter flights typically yield more than long haul flights per ASM due to the higher fixed costs an airline needs to cover to remain profitable.
For example, an airline pays a ramp employee to load a bag, or a ticket agent to check in a customer the same amount if they are flying from Los Angeles – Sacramento or Los Angeles – Honolulu. The longer the leg, the more miles to spread these costs across. The same goes for headquarters personal doing the same job function for a passenger flying short haul or long haul. The same can be said for fuel costs. A long haul flight spends lots of time at cruise “sipping fuel” per ASM while a short flight spends a higher proportion of the flight climbing and “gulping fuel” per ASM. And of course, pilot taxi time is the same at a given airport if the airplane is being flown 500 miles or 5000 miles.
These constants require an analyst to adjust the CASM and RASM for stage length. We agree ASMs are important, but they need to be analyzed correctly to make an apples-to-apples comparison across carriers.
The MIT Data Project includes analysis that stage length adjusts employee expenses. Because of the nature of its operations, Southwest’s average stage length is 41% less that United, 14% less than Delta, and 28% less than American. When pilot CASM is stage length adjusted, the current SWAPA proposal results in Southwest pilot CASM being approximately 15% to 25% lower than American, 20% to 30% lower than United and 20% to 25% lower than Delta between 2016 and 2021.
The bottom line is that I firmly believe the SWAPA proposal is not only affordable and consistent with recent pilot compensation changes at other airlines, but it also enables the company to continue to achieve our mutual goal of maintaining our cost competitiveness.
Before I close, I would like to address one last statement which I also feel misrepresent the positions of the Southwest Pilots. In his August 3 article, Mr. Bhaskara states “Simply offering a massive contract ‘out of profits’ would be almost malfeasant.” I couldn’t agree more! After the failed TA, my team presented a fully-costed and fully-analyzed offer that adheres very strictly to Southwest founder Herb Kelleher’s famous quote and is fundamental to Southwest Airlines: “How much can we afford to pay our employees without sacrificing the success of the Company?”
Our proposal maintains Southwest Airlines’ relative cost advantage with its peers, and as a matter of fact, since we reopened negotiations with the Company, those margins have even increased as new OAL contracts have been ratified.
SWAPA’s primary responsibility is to our membership, but we are acutely aware that every Southwest employee’s future is tied to the fate of our Company. A competitive and agile Southwest is critical for management, labor, and our shareholders, and is key to our continuing long-term success. The spirit and culture of Southwest Airlines lives in every employee and we at SWAPA are committed to maintain that warrior spirit.
Chairman, SWAPA Negotiating Committee.