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Does a Contract Extension Make Sense Right Now? (2)

Does a Contract Extension Make Sense Right Now? (2)

(Compiled from the 2nd virtual roadshow transcript and lightly edited.)

Q Some Flight Attendants think that starting negotiations later this year will position us to take advantage of potential profitability later. Is this a good strategy?

A

Well, I think we’ve heard a lot about “the curve.” Is it a good strategy? It’s an opinion question, so I’m going to answer it with my opinion based on my experience.

It’s not a terrible strategy, but is it the best strategy? I don’t believe so. I think that we would be better served by waiting just one year longer to be on the other side of that curve where it’s not just starting to start go up but where everyone else is starting to rise, too, and other groups have started to bargain. So I would not call it a good strategy.

I think it’s not a completely detrimental strategy, but it wouldn’t be my preferred way to go, which is why I am in favor of this extension. At the same time, no one has a crystal ball, and I don’t want to tell anyone how to vote, so you really have to look at it and just listen to all the information and decide for yourself what you think is the best for you, your family and for all of us collectively.

MEC President Jeff Peterson

Does a Contract Extension Make Sense Right Now?

Does a Contract Extension Make Sense Right Now?

(Compiled from the 2nd virtual roadshow transcript and lightly edited.)

Q According to an economist at Morgan Stanley I talked with about a month ago, this pandemic produced what is called an exogenous shock to the economy, which typically produces immediate chaos but a short recession and quick recovery. In this case that is what is happening: The US economy bottomed out last July, corporate profits reached pre-pandemic levels Q1 2021, and corporate revenues are on track to do so by June 2021. Employment always takes longer to recover. The airline industry will lag but will also recover.

Since the contract negotiations will take several years, and I’ve read that the pay part of negotiations happens at the end, we should be well into recovery by the time our pay is negotiated. Without this extension our prior contract already has been extended. Many Flight Attendants don’t believe another extension makes sense. Can the economist comment on this?

A

Yes, the economist can. First off, I don’t know which corporations are operating at pre-pandemic levels of profitability in the first quarter of 2021.Obviously airlines aren’t, and I guess the question really is in terms of the next year following the amendable date without a TA the difference between 1.5% and 0% is kind of what we’re looking at.

So, when I when I say that I mean we are not going to get that money back in a future year by saying we gave it up, (but) we want it back in 2023 or 2024. It’s kind of a lost opportunity in my book. To look at with the contract opening in December of 2021where would we be in a year if we didn’t extend, and I would say we would have gotten zero percent pay increases for sure as opposed to a 1.5 percent pay increase for sure.

So, I agree that the airline industry lags behind the rest of the economy. The economy is forecast to grow very strong coming out of this recession, but I do think it’s really a question of do you want a one and a half percent pay raise or a zero percent pay raise over the next year after the amendable date. That’s really the question on the table because I don’t think there’s any way to negotiate this money back in some future period to make up for what we gave up.

Aviation Economist Dan Akins – FlightPath Economics, LLC

Almost every section of the agreement has an economic impact, and when you’re bargaining, if the company is really in cash preservation mode, then even sections you wouldn’t think like sick leave and vacation–any little work rule improvement that you want there–they’re looking at how is that going to impact on sick leave rates, how it’s going to impact on vacation utilization and so forth. In that context what you find once you get into scheduling and reserve, they’re looking at all of those work rules that you wouldn’t necessarily think as economic items as well. So, in the context where a company is either concerned about cash burn or they’re concerned about rebuilding cash reserves, all of the sections of the contract become a lot more difficult to negotiate, and things really slow down.

In part we know the answer here because we know that negotiations were proceeding at a pace such as (at) American and Southwest. Even though they…already started their negotiations, those negotiations essentially stalled out. Even though they weren’t at (the) economics (yet), just because there wasn’t going to be or there wasn’t any progress being made. When there [were] substantive discussions, the company was coming in and demanding concessions.

So, the other thing I think to take into account is Jeff went over your position in the industry [regarding pay ray rates earlier in the roadshow], and … one of the features of bargaining in this industry is we do something called “leapfrog bargaining.” What that means is we’re able to win increases at one carrier that provides a platform for the next Flight Attendant group to come back and use those increases as an argument about why they need more.

So, for example the Hawaiian Flight Attendants got an increase right before the pandemic. Those negotiations centered on where was everyone else situated, and we had a big fight with [Hawaiian management]. It was really based on what the comparators in the industry, and how does that affect our negotiations. One of the difficulties if you try to speed up your negotiations in front of everybody else is that your comparators haven’t had a chance to get the increases that they normally would have gotten. American you know we would have hoped but for the pandemic that they would have been in a better place right now with their contract. If they had gotten some good increases, that provides a better basis for you to get increases and so forth. United, Spirit and all of that.

You want to be … doing your timing correctly … in order to get the increases … that you really want in these negotiations. We need some of these other work groups to get in there and also be fighting for increases otherwise you’re going to be a little bit ahead of the curve.

This one-and-a-half percent, it’s basically in line when you do an extension. You don’t get a massive increase, but you get something to kind of keep you where you’re at until you can have a more favorable point.

AFA Director of Collective Bargaining Joe Burns

From my experience with negotiating for AFA Alaska, it’s exactly like what Joe has been saying about what Flight Attendant might think is not economic because it’s not specifically having to do with the step rate–so the pay rate–or say the vacation value or something like that. They think that’s not economic, all the other things, but they actually are…. Say open time is an example of something that we may want to likely revisit, and it does have an economic impact because … it does impact staffing, and therefore it costs the company money…. A sensitive topic that we will address at some point is say TFP versus block, and there’s a whole conversation that could be had on that, but … again it’s an economic conversation.

So, if we didn’t delay, (then) we would go to the table [in September], and we would quickly blaze through the non-discrimination (policy), all the stuff that we agree to right away, or the very low-lying things about certain definitions or updating and incorporating LOAs that we’ve already agreed to into the contract.

Once we’re done with that, then it really is like all of it is economic: reserve, scheduling, hours of service, obviously pay, vacation, sick leave. So, it would just make it challenging to have those conversations and probably would not be extremely productive for some period of time, and that’s why we have brought it to you guys for consideration whether this is our best strategic position to enter negotiations [in September or to extend for a year].

MEC President Jeff Peterson

Rising Stock Price (NYSE: ALK)

Rising Stock Price (NYSE: ALK)

(Compiled from the 2nd virtual roadshow transcript and lightly edited.)

Q Our stocks are up way up today (April 12, 2021) at 71. What would you say that has on the influence of how we are doing?

A

I think that it’s an encouraging sign for Alaska in particular. I do think that at least with the last scan–I haven’t been following the other aviation stocks–but I think our stock is probably a little over inflated at the moment based on recovery. It is encouraging, but the recovery is far from certain.

MEC President Jeff Peterson

Yeah, I think … that’s a good point, Jeff. The recovery is far from certain, and if you look at where we are with a 71-ish dollar value stock, it’s the highest it’s been since about 2017 October. But if you look at carriers that are positioned in the box that I talked about earlier, which is no wide body international mostly domestic discretionary traffic, those carriers including Alaska, Southwest, somewhat jetBlue, Spirit, Allegiant (and) Frontier. Those stocks are all kind of in that same bucket. They’re close to all-time highs–at least all-time highs in the last three or four years–and it’s all because those are the places of the industry analysts expect the recovery to be to be happening fastest. It’s a reflection of not what’s actually occurring but relative to other airline stocks.

What’s likely to occur at Alaska and other primarily narrow body domestic focus carriers are looking at…a faster recovery than United, American and Delta, which if you look at their stocks are still about halfway back to where they were this time or a little bit earlier last year. So, I think it’s a reflection of what the market expects to happen in the future not so much what’s happening now.

Aviation Economist Dan Akins – FlightPath Economics, LLC

Analysis of the Economic Impact of the COVID-19 Pandemic on Alaska Airlines and Maximizing Bargaining Leverage in Upcoming Flight Attendant Contract Negotiations

Analysis of the Economic Impact of the COVID-19 Pandemic on Alaska Airlines and Maximizing Bargaining Leverage in Upcoming Flight Attendant Contract Negotiations

A message from Aviation Economist Dan Akins of FlightPath Economics, LLC
(Compiled from the 2nd virtual roadshow transcript and lightly edited.)

Hi everybody. I have been in the industry for about 38 years. Kind of like (AFA Director of Collective Bargaining) Joe (Burns), I’m involved in a lot of different negotiations inside AFA and outside. I do mechanics, pilots, rampers (and) dispatchers. I’ve helped with the last Alaska AFA contract, and my role is essentially trying to keep track of each company and their place within the industry as well as the industry’s overall health.

Thanks for inviting me to this important decision-making process regarding your extension. As I mentioned in the introductions, I’ve been in the business for a long time, and negotiating sessions all have a context. The most important context for labor is to hit the timing well, meaning you have leverage when you’ve got profitable companies. We had about 10 years’ worth of profitable industry results that were punctuated by this unforeseen pandemic, and the context really is that the industry is different than it was during any pandemic, or crisis, or war, or after 9/11, in that it’s more consolidated–and Alaska’s obviously participated in that consolidation.

So, the industry is different, and this crisis is different, and one of the ways it’s different is that with a consolidated industry (there is) more control with fewer carriers. We also had PSP grants, of which Alaska has taken about 1.6 billion dollars. That’s never happened before. So, the odd thing about the worst crisis the airline business has ever faced is that no carrier has declared bankruptcy. No large carrier. So that’s different. But what is not different is we are still climbing out of the worst hole the industry has ever faced.

I want to talk to you about what that means regarding your vote for your TA and what it means likely for the future. My biggest concern is, you want to regain the foothold in leverage that you had in bargaining prior to the pandemic which was strong across the industry based on company results. So, I want to talk to you about generally what everybody knows about Covid-19: It was bad. How bad was it for the industry? How bad was it for Alaska? What are the prospects for the industry’s recovery and what are those prospects based on?

So about I think October, September last year, most of the industry analysts were saying that Covid impact on the airline business was worse than all the other impacts that have ever affected the airline business. Now what does that mean? The industry had 20 billion dollars in profits in 2019, and we swung to 35 billion in losses in 2020. That’s a 55-billion-dollar swing in a year. That has never occurred.

The way we stayed out of bankruptcy is government loans and PSP programs to support our payroll and our benefits. The impact back in September, October was foreseen to last as long as five to eight years. The most aggressive analysts (optimistic analysts) were saying maybe two or three. Now from Alaska’s perspective, it has hurt the company, it’s hurt its profits, it’s hurt employment potential, it shut its growth for the industry. Domestically last year at this time we only had about 10% of the normal ridership in April that we normally have across the industry. Right now, we’ve got about 60% so it’s a vast improvement and it’s on an upward trajectory.

The worst place to be as far as an airline position is to depend on business traffic or long-haul international revenue because those markets are dependent on international criteria (and) all kinds of restrictions on flights. The loss of international traffic last year at this time was almost 100% with 99.2 percent of all international traffic evaporated last year during April. Right now we’re about 25 percent back, (which is) 75 percent below where we should be.

So, the good news is for Alaska is that Alaska does not participate in long-haul wide-body international flights that are the worst affected. That helps the prospects for Alaska’s recovery. It also helps the prospects for carriers that are primarily domestic and primarily discretionary. That is vacation traffic that’s pent up and if any of you have flown on the “sun markets,” (such as) the Hawaii markets (and the) California markets, those airplanes are full, and the prices are high. That is sort of the ballast for the recovery at Alaska.

Know that people have retired. You know there was a temporary furlough (of) employment at Alaska and employment in the U.S. is about 60,000 fewer people employed today in passenger carriers than were here last year. That’s despite Covid early retirements, voluntary leaves, etc.

Right now, Alaska has reported its revenue (is) off by about 63 percent and as I mentioned Alaska did take the beneficial program known as PSP (or) Payroll Support (Program). There’s a third round (and) I’m not sure if Alaska signed up to take the third round, but essentially, we’ve gotten this huge benefit to save our jobs and save our payroll. Alaska’s cash is more than six times what it normally is in a regular year. In a regular year Alaska usually carries a couple hundred million dollars in cash on its balance sheet and that’s important because it’s a measure of liquidity that if something came up Alaska could handle it with what it has in the bank right now. Alaska has about $1.4 billion however Alaska has already taken on another $1.2 billion in debt.

The good news for Alaska is that the debt exposure and the ability to pay it off with cash is almost 100 percent so Alaska didn’t borrow money to buy airplanes or fixed facilities. Alaska borrowed money to generate cash and so Alaska even says in its (Form) 10k that they are largely prepared to pay down the increase in debt when the industry is stabilized. The industry hasn’t stabilized yet, (and) we’re still crawling out of this industry hole.

So, when you think about where we are in terms of leverage, Alaska reported the largest loss like every other carrier in 2021 from operating profits of $1.1 billion. (I know I’m throwing around a lot of numbers.) $1.1 billion in 2019 was the operating profit minus $1.7 billion was the operating loss in 2020. Now the first half of 2021 … is approaching break even on a cashflow basis. On a profitability basis after you pay for everything–after you pay for the debt service (on) the airplanes (and) all the non-operational costs that every airline has to bear–the front end of the year is going to be a loss (and) a pretty big one.

The back end of the year looks like a profit. On balance Alaska is likely to post a $600 million operating loss but that is mostly because we’re going to lose about that much in the first quarter and about half that much in the second quarter and then slowly rebuild according to expectations in the third and fourth quarter of this year. So, when we hit the amendable date of the current contract, we will have had two years of horrendous losses which again according to what Joe has said and from my background, bargaining from a position of strength means that you’re bargaining from profitability and that’s what we don’t have going into December.

However, the good news is according to Wall Street forecasts, 2022 looks highly profitable: about two-thirds as profitable as 2019. Then 2023 as much as anybody can hope looks like it’s even more profitable getting back to around a billion dollars in operating profit. So again, I think the fundamental choice you have is do we go in and expose ourselves to the negative side of the environment or wait a year, get a pay raise (and) keep ourselves positioned as the number two or three highest paid Flight Attendants at top of scale in the industry and wait until things get better so we can leverage that situation and look back at this period as a temporary problem that Alaska and the industry was able to conquer.

Alaska is very well positioned to become profitable as fast as just about anybody in the business, but it’s going to have to wait for about another year before we’re back to a position of strength where Alaska can build on its profits, and (then) we can leverage that at the bargaining table…. I think getting a TA with a one and a half percent in normal times might not seem that great, (but) in the most cataclysmic times that have ever occurred, I think it’s almost incredible to be able to do this.

The Impact of the COVID-19 Pandemic on Flight Attendant Negotiations

The Impact of the COVID-19 Pandemic on Flight Attendant Negotiations

A message from AFA Director of Collective Bargaining Joe Burns
(Compiled from the 2nd virtual roadshow transcript and lightly edited.)

Hi everybody. I’m Joe Burns, director of Collective Bargaining at AFA. I’ve been at AFA for 20 years. I’ve been doing bargaining (on) most contracts in the industry (that) I have worked on in one capacity or another. For the last five years I’ve been director of bargaining overseeing our bargaining at various carriers.

I just want to give you a little background on bargaining in the industry over the last couple years and how this contract extension fits into that. If you rewind the clock about a year to a little over a year and a half what you find is that we were in a very sort of offensive mode of bargaining where we had Flight Attendant work groups demanding increases in pay and improvements. We had a big battle going on at Hawaiian Airlines that (Aviation Economist) Dan (Akins) and myself and (AFA Senior Staff Negotiator) Paula (Mastrangelo) work closely with the Flight Attendants there where we took a strike vote we were doing picketing and very much seeking improvements.

Overall, the American Flight Attendants were back at the bargaining table after their joint contract that had been put together in 2015. At end of 2014 the United Flight Attendants had an early opener (and) you all here at Alaska had an early opener coming up and Spirit had an early opener coming up. So overall we had a lot of bargaining going on.

We were really sort of pressing the issue to get improvements then the coronavirus hit, and you know by the by the time we were getting into February and march of last year the bargaining climate shifted dramatically. Through some very hard bargaining we were able to get our deal done at Hawaiian right before they shut down the state, but it was really a photo finish. The horizon Flight Attendants were able to get a deal but that was done before the crisis really hit although they voted on it during that period.

But other than that, groups that did not have locked in agreements found that their bargaining stalled out rather dramatically. The American Flight Attendants were in Section 6 bargaining. They haven’t bargained for a year. I’m working with that work group, and I think our analysis there has been that it has not been a good time to be in bargaining. We were concerned about (American management) coming in and demanding concessions and trying to take away work roles. When the company is losing millions of dollars of cash each day, it would be hard to win any types of improvements. So that bargaining got put on hold.

Beyond that I think a lot of the work that the unions and the companies have been doing for the last year have been focused on doing side letters dealing with furloughs and so forth, and there hasn’t really been the attention that would have been given to negotiations. So, in general what we’ve seen throughout the industry’s work groups … who are in bargaining are pausing their negotiations, so that would be the American Flight Attendants. At Southwest I think there was an attempt to keep the bargaining going, but pretty soon management started demanding concessions, so those negotiations have slowed down.

In work groups that had bargaining coming up, pretty much across the board the Flight Attendants have opted to delay the early openers in their negotiations. Your group already did that once. The Flight Attendants at Spirit Airlines delayed their early opener. The Flight Attendants at United did not exercise their early opener. All of these groups based (their decisions) on an analysis that this is not the time that you want to be in bargaining. You want to be generally bargaining during an upswing. I think you know six months ago before we got the payroll support programs passed, the real concern is that management would use these negotiations as a way–because we had open contracts–of trying to force through concessions, frankly.

So anyway, that that was the overall framework. I think Dan can talk more to the economics of it, but we’re predicting that the bargaining climate is going to continue to be difficult for the next several years. We’re hopefully starting to see an uptick, and we’ll get through the worst of the pandemic crisis, but when the company spends down a lot of their cash reserves (and/or) when they borrow money, then it creates a bargaining climate where they’re pinching pennies for the next number of years, and we’re going to have to fight to get whatever we can get frankly. So, for these negotiations in particular I think what sort of made sense is at some point it was in our interest to be pushing back negotiations for the reasons that I’ve stated.

But then at a certain point I think the discussion of your MEC leadership was if it’s in our interest to delay negotiations, (so) why don’t we see if we can get some immediate increases for Flight Attendants to do what’s in our interests anyway, which is to delay the negotiations. So, I think that’s really where the thought process is in terms of getting a one and a half percent increase and then going back to the table in another year. I think that’s probably more in line with where the negotiations are going to be throughout the industry, which is as I’ve indicated, having somewhat of a pause (or) a regrouping and then be(ing) able to go back to the table and push offensive demands.

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