Archive for the ‘#horizonair’ Tag

Horizon Air Feels the Pressure   Leave a comment

I posted a while back about how Horizon Air was stupidly ignoring economic reality and damaging its brand by canceling flights due to an ongoing pilot shortage caused, primarily, by a refusal to raise wages or offer better benefits.

Image result for image of horizon airlinesThis week, I met a former Horizon Air pilot who was sheepish because he quit Horizon in 2008 when the airline trimmed positions and asked for a modest pay cut because of rising fuel costs in a recessionary environment. He eventually found another piloting job (after nearly 18 months of unemployment), but at a much steeper pay cut than what Horizon had been offering. Still, he remains friends with some Horizon pilots and he says they are frustrated that profits are — or were until recently — healthy, but they haven’t benefited from that.

Of course, benefits like medical insurance have increased substantially since 2008 and many of the raises we might wish to have received are tied up in the ever-expanding benefits we demand. Most of us don’t realize that for every dollar an employer pays us in wages, they lay out a dollar or two for benefits like workman’s comp, retirement, medical insurance and paid leave. It’s no wonder we aren’t seeing an increase in our paychecks when the cost of providing benefits keeps increasing rapidly.

So, Horizon Air’s CEO is “disheartened” because regional carrier SkyWest Airlines said Wednesday it will increase the number of jets it operates next year for Alaska Airlines, the parent of Horizon.

SkyWest said it has ordered an extra 10 Embraer E175 jets that it will operate for Alaska Airlines next year — five more jets than was previously announced by Alaska in June. The order adds to the 20 E175s SkyWest is already operating for Alaska.

The five-jet bump in the order is spurred by the capacity shortfall left by Horizon Air’s near-term shortage of pilots, which has caused it to defer deliveries of six E175s previously scheduled for delivery this fall and next spring. SkyWest’s order will fill the gap.

SkyWest is an external contractor that competes directly with Horizon to operate Alaska Airlines regional routes to smaller airports. So the expansion of SkyWest’s role takes business that Horizon might have had.

In an internal message to Horizon employees, Chief Executive Dave Campbell acknowledged that “this news is disheartening,” yet reiterated that the deferrals represent only a pause in Horizon’s growth.

He said the airline’s firm order for a total of 33 Embraer E175s will all be delivered, with the first 30 of those flying by 2020.

The deferral of the six jets last week prompted anxiety among employees and rumors that parent company Alaska Air Group would take the jets from Horizon and lease them to SkyWest.

I’m not at all surprised Teamsters union Local 1224, representing Horizon’s pilots, filed a lawsuit Friday alleging a breach of its contract and seeking a federal court injunction to ensure only Horizon pilots can fly the aircraft. Labor unions always seem not to recognize their own culpability in making their members less attractive in the job market as unions demand ever-increasing wages and benefits without regard to profits or infrastructure. It’s like they think money grows on trees.

Campbell insists that the SkyWest order is separate from Horizon’s jet order, and will not affect it. Meanwhile, Alaska Air Group spokesman Bryan Zidar said Wednesday that “SkyWest is buying these extra planes to take care of the needs of the people who fly with Alaska,” but that the number of E175s Horizon will take by 2020 is unchanged.

Campbell told employees that the jet deferrals will “give us the time we need to catch up on pilot hiring and training.” Of course, recruiting will now require an increase in wages and possibly benefits because the economy is healthier and Horizon has dragged its feet in adjusting to that new economic condition.

Posted September 7, 2017 by aurorawatcherak in economics

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The Folly of the Horizon Air Pilot Shortage   Leave a comment

Supposedly robots are going to take over our jobs pretty soon, but there are six million job openings in the US, and large companies in a range of industries claim they are running short of humans to perform labor, so maybe the truth is that robots aren’t quite ready to take all of our jobs. American companies don’t have a shortage of people. Their problem rests with wages, benefits, and training, and that’s a problem they could fix, but haven’t.

Horizon Air is a prime example. A regional airline and subsidiary of Alaska Air Group, Horizon services the Pacific Northwest including Alaska. The Seattle Times reports it’s “cutting its flight schedule this summer because of a severe shortage of pilots for its Q400 turboprop planes. The shortage became a crisis this summer when Horizon was forced to cancel more than 318 flights because it didn’t have enough pilots to fly all its planes. That represents 6.2% of the flights Horizon runs between Seattle and places like Boise, Spokane, and Portland.

Let that sink in a moment. Horizon’s bread and butter is flights between Seattle and smaller airports like Boise and Spokane and Nome, Alaska. Flying these routes isn’t a side business for Horizon. That’s it’s only business. Canceling flights damages their brand and their company’s long-term prospects — it alienates and annoys customers who have already purchased tickets. It also hits short-term profits. If you’re in the business of moving people from Point A to Point B, the more you can move the better. You’ve already committed to pay the overhead of planes, insurance, gate slots at airports, maintenance, and ground crews. You should want passenger volume to be as high as it can be. This is the equivalent of Starbucks deciding not to open several hundred existing stores because it doesn’t have enough managers.

Recognize that Horizon Air isn’t some fly-by-night operation unable to cope with the mysterious ways of the marketplace. It’s a unit of Alaska Air Group, a publicly held company that has a market capitalization of $11 billion and chalked up $1.7 billion in revenue and $99 million in net income in its most recent quarter. That’s a big balance sheet, representing vast resources, stock, borrowing capacity, and access to all kinds of services. While not considered one of the majors yet, Alaska Airlines is an up-and-comer who is pushing the major airlines to either do better or get out of the way. So, what’s going on?

alaska airlines horizon air

There’s a metaphor in a big airline intentionally grounding flights because it can’t find pilots. Horizon (and other companies in this situation) are paying the price for a decade or more of corporate sickness surrounding wages. Here’s an economics lesson.

Labor is a commodity … just like gasoline or sugar. It’s subject to the laws of supply and demand.

When labor is in abundant supply and lots of people with the needed skills are looking for jobs, but openings are few, companies don’t have to pay as much to fill positions.  That’s where we were from 2008 to 2012 … a lot of hungry people, not that many openings, so the companies could set whatever wage they wanted and workers would take it because they needed to make some money rather than make no money.

Conversely, when labor is in short supply and few people with the needed skills are seeking work, but there’s lots of openings, companies have to pay a lot more to fill positions. That’s the reality of airlines in the last few years. The number of people flying has increased, but a lot of Baby Boomer pilots have retired, so now the pilots who are still working are in demand and they know it, and expect to be paid more.

So why aren’t businesses adapting? Maybe a lot of business managers never took Economics. They’ve become accustomed to thinking they can have all the labor they want, with all the skills they need, without having to pay much for it. They no longer want to offer good benefits or long-term job security or they refuse to fund the training needed for pilots to qualify to fly new aircraft.

We’ve been hearing complaints about a pilot shortage for a few years now. The problem seems particularly acute at regional airlines, which often pay exceedingly low wages for jobs that require training and education that can cost up to $100,000. To weather its current problems, Horizon will pay some pilots overtime to fly extra hours. Of course, there are FAA rules against flying too many hours in a given day, so that’s a temporary fix at best.

I happen to know several Alaska Airlines pilots (I have a friend who caters to them), who have privately told me what the problem is and it doesn’t just affect Alaska/Horizon. The airlines have become tightwads who don’t understand supply and demand. If Alaska Air Group wants to fix the problem, they need to:

  • offer higher wages to people who already have jobs so they will leave their jobs to work for the other airline
  • offer existing employees better long-term incentives — profit-sharing, stock options, pensions and other benefits that will encourage them to stay
  • Recruit new employees by offering to train them or pay back the loans they incur while getting the training, or offer to split flight school tuition in exchange for a long-term commitment to the airline

Coping with a shortage of skilled workers by shuttering a portion of your operations doesn’t seem like much of a solution. Of course, this affects me because Alaska Air Group provides the majority of air travel in and out of Alaska. So work it out, guys. Don’t allow your great customer service to deteriorate because you’re stuck in a business model from nearly a decade ago.

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