Randy Babbitt
Randy Babbitt has been involved in the airline industry for 35 years, first as a pilot, then as the leader of the Air Line Pilots Association and now as an aviation and labor relations consultant. Currently serving as a director for the Oliver Wyman consultancy, Babbitt last week spoke during a National Business Travel Association forum in New York. After his presentation, Babbitt fielded questions from session moderator Douglas Blackmon, Atlanta bureau chief for The Wall Street Journal, and conference attendees. An excerpt follows.
Can you comment on the changes to global alliances?
Currently, these alliances provide one other extension that is prohibited in any other way except through ownership: cabotage. U.S. carriers sort of have an advantage because they can fly to different countries in Europe. When Air France flies to New York, they can't then pick up passengers and take them to Atlanta. That would be cabotage, and it is forbidden everywhere. These alliances allow, for example, Air France to sell you a ticket--even if it is on Delta or someone else--and you as the passenger would see a seamless transition from Paris to New York to Atlanta. The alliances are a means to do that, and they will continue to exploit that.
What about the notion that U.S. carriers--having gone through the restructuring they have, and given the efficiencies they have created--through Open Skies effectively become the low-cost carriers challenging the European legacy airlines that are still burdened with a lot of the old-fashioned labor and regulatory costs that U.S. airlines have successfully gotten out of?
I think it is a very valid proposition. The U.S. carriers have become incredibly more efficient. They schedule aircraft more efficiently. They schedule flight crews more efficiently. What U.S. pilots, flight attendants and other employees produce make the European carriers pale. However, the other side of that equation is the split between leisure passengers and business passengers. While that number could arguably be 70-30, that's the percentage of traffic. But the percentage of revenue that is generated is more than 30 percent, it could be over 50 percent. Airlines are not going to walk away from that segment of the market to scoop up more of these $99 fares ... One other intrinsic thing is that most of the European carriers were government-owned at some point in time, so when they privatized, they essentially started with a clean balance sheet. When you start an airline in this country, you are beholden to somebody.
Is there any other value--outside the routes between the United States and the United Kingdom--that makes Open Skies attractive to the carriers?
The elimination of an entry barrier--the fact that you don't have to have either a bilateral agreement or a multilateral agreement to serve these countries--probably inspires somebody to say, "You know what? We don't have that hurdle, so let's go ahead." I think you will see a lot of experimentation.
I read a quote from [CEO Doug] Parker at US Airways, saying it was irresponsible, or not the right thing to do, for Delta and Northwest to let their pilots tough it out, rather than making executive decisions [regarding a potential merger] on their behalf. What is your take on that?
That was a bold statement, and he should know fairly well with the angst he has trying to merge two pilot groups. It's very complicated. Here's a 30-second primer: If we had two decks of cards, red and blue, and we shuffled them, in a perfect shuffle every other card would be red or blue. So why don't they just put them together like that and be done with it? The problem is that if one carrier's top 20 or 30 cards have been working there for 30 years, and the top 10 or 15 cards in the other deck have been there for maybe 20 years ... Now you are shuffling someone with much less seniority, and maybe they get a windfall. The difficulty is for representatives of the two pilot groups to go back and say, "This is what I agreed to." That is one of the reasons the arbitration process works in some of these cases: It is simply political cover. I can tell you anecdotal incidents where pilot groups were merged, they gave a list to the arbitrator and said, "Just have some hearings, do whatever you need to do for a few weeks and hand us this list back, because politically, we can't go back and tell people that this what we agreed to." That is the position that the Delta folks have put their pilots in. They're still trying to work it out, but it is politically a very difficult task for the representatives of those pilots.
With the experience you have at ALPA, where is this is going to go?
For those not following on a day-to-day basis, the Delta pilots do not want arbitration and indicated they don't want to risk their fate to an outsider. The Northwest pilots have the position that the pilot groups should be put together on a date-of-hire basis, which would give them a great advantage. The first 700 pilots on the list would all be Northwest pilots. If they asked me, I would say, "Sort them alphabetically." [laughter] What they could do is come up with a process and say, "We will go to arbitration, but we are going to limit the scope and boundaries that the arbitrator can use." That is one method. The other method is a little more difficult. That is, to say, "Things have become so bad that you know what? We're just gonna do it." Maybe it is with another carrier, maybe it is with this one. There are provisions in the law that dictate how you resolve these issues. You take a step back, take a deep breath, go forward and let chips fall. Yeah, there will be some unhappy people.