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Southwest Airlines, George Santos, Clear Secure

Happy holidays to everyone! I hope everybody survived. I hope that tons of snow (Buffalo, New York), bitterly cold wind chills, and subzero temperatures didn’t freeze out your holiday spirit.

Just before Christmas, a large cold front moved across the country. It brought severe winter weather to most of the country. Besides the freezing cold temperatures, wind gusts in the 40- to 50-miles-per-hour range made this a severe winter storm. On December 23, as winter storm Elliott hit the Midwest, over 4,500 flights were canceled. With Christmas just around the corner, this was disastrous for holiday plans. Over the next two days, Americans seemed to figure out how to get where they were going.

Unfortunately, that’s not true. Tens of thousands of Americans were stuck. They had no way to get to where they needed to go. While major air carriers like American Airlines, Delta Air Lines, and United Airlines managed to get their planes back on schedule relatively quickly, Southwest Airlines continued to struggle. A week later, Southwest Airlines continued to cancel more than 2,500 flights a day. Passengers were stranded hundreds of miles from home. Southwest had no answers for them. Why? Why was Southwest Airlines so out of step?

Let’s remember that we, the taxpayers, bailed out Southwest Airlines early in the pandemic. We handed them over $7 billion. Billion. This was done to prevent massive layoffs in the travel industry, which would have crippled our economy. So, I think that we should be able to ask Southwest for some customer service for our money.

A failed business model

Some of the problems lie in Southwest Airlines’ business model. Major air carriers like American Airlines, Delta Air Lines, and United Airlines use a hub and spoke model for their flights. For example, American Airlines has five or six major hubs throughout the United States. To get almost anywhere on American Airlines, you need to go through one of those hubs to connect to a remote location. For example, if you wanted to fly from Asheville, North Carolina, to Miami Beach, you have to fly into Charlotte, a major hub for American Airlines.

Southwest Airlines is different. They have a point-to-point model. For example, you can fly on Southwest Airlines from Oklahoma City directly to Phoenix. If you are flying on a major airline like American, to get to Phoenix, you would have to fly from Oklahoma City to Dallas (a major hub) and then Dallas to Phoenix. So, besides the cheaper fares, you also save time at the airport with Southwest.

The point-to-point model works great until you have a major weather event like winter storm Elliott. Now you have airplanes scattered all throughout the country, but they’re not in the right location at the right time. This makes logistics extremely difficult. One would figure that Southwest Airlines would have a sophisticated employee tracking system. This system would tell them where their pilots are as well as where their stewardesses (flight host/hostess) are located.

Unfortunately, they don’t. Southwest pilots have been sitting in airports waiting on assignments right beside angry passengers waiting on planes. To get this complicated system back online, Southwest Airlines must cancel thousands of flights to get their airplanes, pilots, and crew back in the right locations. It is still unclear to me why it takes nearly 10 days to make this happen. This is a huge failure of big business. The next time someone tells you about how great business is at efficient use of resources, point to Southwest Airlines.

By |2023-03-21T12:25:16-04:00March 21st, 2023|Business, Congress, Party Politics|0 Comments

American Airlines Files for Bankruptcy – This Can’t Be Good for Us

from WSJ

Yesterday, as I was driving home from work, I heard that American Airlines is filing for bankruptcy. American Airlines. Depending upon how you measure, American Airlines is one of the biggest, if not the biggest, airline in the country. American Airlines, along with Southwest Airlines, weathered the 9/11 downturn fairly well. So what happened? In their court filings, American Airlines has $24.7 billion in assets and $29.6 billion in debt. So how did this happen? What is the problem?

It’s the planes

American’s mainline jet fleet of 619 planes includes 247 twin-engine MD-80s made by McDonnell Douglas Corp., according to the airline’s website. Boeing acquired McDonnell Douglas in 1997. Those planes, which are no longer in production, are being replaced by Boeing 737-800s, which are about one-third more fuel efficient.

Placing an order for aircraft “creates a contract,” and in bankruptcy accepting or rejecting the contract will be up to AMR, said Scott Peltz, the national leader of RSM McGladrey’s Financial Advisory Service in Chicago. Boeing and other suppliers will probably have representatives at AMR’s bankruptcy hearings who “will be looking at what their options are,” he said.

Boeing said it has “no reason to doubt” that the jet order remains pivotal to AMR. Boeing and Airbus will provide $13 billion of financing on the first 230 jets, American said in July.

Maybe it’s more than just the planes. I read this in the Wall Street Journal:

The Fort Worth, Texas, company for years has resisted the type of court-protected restructuring that allowed other big carriers including United Continental Holdings Inc.’s United Airlines and Delta Air Lines Inc. to realign costs and find merger partners. AMR said its annual labor costs, including pensions, are about $800 million more than rivals, a figure unions dispute. Its financial woes have grown in recent months as contract talks with its pilots fizzled and fuel prices rose.

The bottom line, as I see it, is that this isn’t good for the country or for labor. There are going to be job losses. There are going to be fewer flights, especially to smaller cities. This isn’t good.

By |2011-11-30T09:36:21-04:00November 30th, 2011|Economy|Comments Off on American Airlines Files for Bankruptcy – This Can’t Be Good for Us

Downsizing and layoffs are bad for business and bad for the US

There a lot of things in life that are counterintuitive. For example, when we lose control of a car on ice, we are told that we need to turn our wheels into the slide in order to gain traction. We’ve been told by Wall Street, time and time again that layoffs are necessary in order for a company to stay competitive. Corporate layoffs happen so often that Forbes has a Layoff Tracker. In February, ABC announced that it needed to lay off personnel in order to keep up with cable news and the Internet (yes, I know… it didn’t make any sense to me either). Pfizer, BFGoodrich, Continental Airlines, Human and Ford Motor Company are among the major companies who announced layoffs in February. Since November of 2008, America’s 500 largest companies have laid off close to 700,000 people.

Southwest Airlines, based in Dallas where I grew up, was always thought of as a cute and interesting airline. They started about 40 years ago and just flew flights inside Texas. They would fly between Dallas and Houston, Dallas to San Antonio, San Antonio to Austin, etc. Nobody really paid them much attention. Currently, Southwest Airlines is the largest carrier in the United States. They have more scheduled domestic flights than any other carrier. They are bigger than American Airlines, Delta Air Lines and United Airlines. Southwest Airlines is the only major carrier that has never had involuntary layoffs. They’ve never downsized. According to MorningStar (may need a subscription), “we still think Southwest has one of the strongest balance sheets in the industry.” Never downsized. Even after 9/11, they didn’t lay off one worker, but the company still has one of the strongest balance sheets in the industry. How can this be?

Unfortunately, there’s no way to do a traditional blind study looking at corporations and downsizing. But there appears to be a growing body of literature suggesting that downsizing is not helpful. One study looked at over 100 companies that laid off workers between 1979 and 1997. The study found that the larger the layoffs, the larger the negative stock returns to that company. Another study looking at productivity found that productivity decreased after layoffs and not increased as we’ve been told time and time again. Another study looking at 122 companies found that downsizing reduced subsequent profitability.

Now let’s think about this. You have a job at some giant mega-corporation, a Fortune 500 company. Five years ago, they had their first layoffs. You were spared. You were told by the corporation and they had to get rid of “dead weight.” Three years ago, the company decided to have a second round of layoffs. Where’s the dead weight now? If you got rid of all of your dead weight two years earlier, now you’re getting rid of essential personnel. How is that beneficial? After these layoffs, you and the remaining coworkers have this feeling of dread. Some people had just been laid off had worked just as hard as you do. A year later, there’s another announcement and more layoffs. Now, how motivated are you and your coworkers to give 110%? When you have a presentation that is due, for example, how likely are you to stay after hours and put in that extra effort? As a matter fact, you and your coworkers might be bitter towards management. You’ve seen their salaries increase over the last five years while yours has remained stagnant.

Cities and towns which at one time were dependent upon these large corporations to provide jobs, now cannot even depend on the corporations to stay in town. You’ve lost the stability of your city or town. Your tax base is unstable. How can you make a reliable city budget when you’re unsure if the corporation will stay in town or lay off half its workforce in a couple years?

If downsizing has negative effects on corporations, employees and cities, then why do CEOs continue to insist that downsizing is helpful… not just helpful, but essential to the survival of the corporation? Wall Street has fallen in love with the phrase, “lean and mean.” This is in spite of the fact that lean may make them unable to do the same quality work as they were able to do five years ago. We have all seen the effects of downsizing, yet we have closed our eyes and pretended that this practice is necessary. Two years ago, Dell computers was having a problem with some of their laptops spontaneously igniting. That didn’t happen five or six years ago. I switched from Gateway to Dell over 10 years ago because of Dell’s excellent customer service. Now, I can describe Dell’s customer service in multiple different ways, but “excellent” is not one of them. (I did buy a Dell Computer, one of their fast XPS computers, and it was shipped with the wrong processor.) Every one of us has a tale about a corporation that we used to trust to do X, Y or Z. the corporation was reliable. They delivered an excellent product. Now, not so much.

If we’re looking for ways to revitalize America, if we are looking for a way back, maybe corporations need to invest in a stable workforce here in the United States. To quote one former head of human resources, “If people are your most important assets, why would you get rid of them?”

Much of this post is based on an article by Jeffrey Pfeffer, Lay off the Layoffs, published in Newsweek.

By |2010-03-07T10:17:52-04:00March 7th, 2010|Business|Comments Off on Downsizing and layoffs are bad for business and bad for the US
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