This weekend I had a series of long and very interesting conversations about airline economics and deregulation in the airline industry with my father, a former executive vice president of Braniff.  I have been following the airline industry since the mid 1990’s and very closely since the early 2000’s and after this weekend I can only say there is still more I don’t know. 

 

The insight I gained on the industry this weekend isn’t easy to get anymore.  Much of what takes place today in the airline world overshadows the history of the industry.  But I thought I would share my new insight in a series of stories this week on airline economics and deregulation.  Information presented as fact comes from my father.  The opinions are mine unless otherwise attributed to someone else.

 

The first of these stories is quite naturally about the history and background of the airline industry.  What almost any fan knows is that the airline world as primarily fostered by air mail contracts originally.  It wasn’t until the DC-3 (and similar aircraft) that an airline could really earn profits from passengers and even then air mail was an essential part of earning a profit as an airline.   In other words, passengers reduced the importance of air mail but it was a long time before it diminished the importance of air mail revenue to a point at which it could be considered relatively unimportant.

 

Prior to air mail, the fastest way to move mail around was by train.  Trains had reliable schedules and a robust network of lines that made it easy, for the first time in history, to move mail in a timely manner.  Since many infant industries are heavily influenced by more mature industries, it comes as no surprise that many of the “best practices” used by railroads were “inherited” by airlines as they began to operate. 

 

One good example of this is how engineers on trains were (and still are) paid.  It was based on time, distance and weight.  An engineer who operated a long, heavy train on a transcontinental route quite obviously was going to A) Be away from home. B) Need skills and experience to operate that train over different terrain. C) Be able to know how to stop such a leviathan in an emergency without completely destroying the train itself. 

 

The engineers were paid a scale of wages that took into account their skill and experience as well as punishing time away from home and long duty hours required to push that train to its destinations.  In other words, an engineer who had to stay on duty for 12 hours a day driving a 1/2 mile long train over a mountainous area would be paid much more than an engineer who drove a feeder line over a short distance delivering boxcars to factories in an industrial area.  Quiet naturally, this kind of thinking was quickly adopted by airlines and airline pilots. 

 

Very early in the game, airline pilots were paid according to the size of their aircraft (a DC-3 pilot earned much more than a pilot of a Ford Tri-Motor) and the distance they traveled.  They are paid in the same manner today.  A pilot who flies a Boeing 737 on 4 or 5 flight segments for 10 hours is paid less per hour than a pilot who flies a Boeing 777 for one flight segment that takes the same time.  The argument is and always has been that the B777 pilot is responsible for a larger aircraft, more souls on board and therefore works harder for those same hours. 

 

The reality is really quite different.  Most of the work a pilot incurs is on takeoffs and landings, not during cruise flight.  It requires no great difference of knowledge to fly a B777 or a B737 and, in fact, it may be easier to fly the B777 with its more sophisticated flight management computers.  The number of souls on board sounds like a good argument but, as my father pointed out, is it?  After all, in almost any aircraft crash, the pilot(s) are the most certain to be casualties.  So, isn’t it in their best interest to fly that aircraft as best they can no matter how many others are on board?  Of course it is.  Practically speaking, we regard it as a tragedy if 20 or 200 people are killed or injured in a crash.

 

So, who should be paid more?  If it is about how hard the work is, then many regional feeder pillots should be paid far more than the B757 pilot who might only fly 3 or 4 segments in a day.  That same feeder pilot might work twice as hard for the same duty time because he or she is making 5 or 6 or even 7 landings and take-offs per day.  Both pilots have to know a complicated set of systems.  Both planes have just 2 engines.  Both airplanes have to navigate the same kind of airspace and altitudes.  Who is working harder?  The regional jet pilot is.

 

But he or she is also the least paid.  Regional jet pilots just starting out make as little as just $20,000 to $25,000 per year.  A B757 pilot is likely making 5 to 8 times that much money for the same or less duty hours. 

 

All because airlines adopted the same pay models that railroads used.  It suddenly becomes more clear why airline managers often resent pilots the most.  In the mid 1970’s, a Braniff 727 captain made as much as 50% more than a senior Braniff executive.  Did the captain work more hours?  No.  In fact, if he worked 80 duty hours a month and if you allowed a 20% bump in hours for time worked but not paid, he or she still only worked 96 hours in a month.  That same airline executive was paid for 160 hours per month and probably worked about 200 hours per month.   The airline can’t run profitably or reliably without either person so who was overpaid?  The pilots, of course.

 

In the next part, we’ll take a look at how pilots (and other aircrew) distorted the the 1978 deregulation of the industry.

Filed under: Deregulation, Trivia by ajax