From an article written about pilot wages:
The Numbers
"There was the day when pilots had the power to deeply affect the bottom line of airlines. Due to a 30 year slide (adjusted for inflation) in compensation and a dramatic increase in fuel costs, that is no longer the case. This is truly the double edged sword. The bad news is major airline pilots don’t make that much money. The good news is major airline pilots don’t make that much money so increases are possible.
At this point we don’t know what pilot compensation has to be to make the profession stable and sustainable. That will be determined by the research required to implement this plan. But in the absence of that hard data, let’s play with some numbers. If the pilots of Delta Airlines (pretending for a moment that Delta and NWA were merged for all of 2008) had worked for
free, Delta would not have made a profit. On the other hand, if they had received 50% more pay, it would have meant an additional $800- 900 million cost to Delta. For the 12,000+ pilots of Delta, the total compensation is less than $ 2 billion a year. Let’s examine that number as it relates to fuel costs.
From Delta's 2008 annual report filed with the SEC…
“During 2008, fuel prices fluctuated dramatically. Fuel is one of our most significant costs. At the beginning of the year, crude oil prices hovered around $100 per barrel, escalating to $145 per barrel by mid-summer.”
“Throughout the summer months, fuel prices remained at record high levels and were forecasted to continue to rise. Based on this outlook, we added fuel hedges to protect against further escalating fuel costs. However, fuel prices fell dramatically during the third and fourth quarters, creating sizable losses on our fuel hedge contracts in the fourth quarter.”
“In 2009, we expect to use approximately four billion gallons of jet fuel. At that level of consumption, a $1 change in the average annual per barrel price of crude oil can impact our financial results by approximately $100 million. Accordingly, the volatility of fuel prices will continue to have a major impact on our financial results.”
Using these numbers, the
Fluctuation in Fuel Cost for Delta (not total fuel costs, but only the change in price) would have been about $10 billion in 2008, excluding any hedging. Let’s assume for a moment that the entire increase in pilot compensation necessary for stabilization and sustainability of the industry is a 50% increase in pilot compensation, and the current total compensation is $ 2 billion a year on the outside, then that would mean a $ 1 billion increase in cost to Delta. Putting it another way, the total increase would be
1/10th of the
fluctuation in the price of fuel for 2008. Then consider the probability that any increase in compensation would be phased in, over several if not many years and the argument of non-affordability becomes laughable.
What is the take away message? Reasonable changes to pilot compensation rates do not and cannot make Delta profitable or unprofitable to any significant degree. The biggest determining factor in the profitability of all the major airlines lies in its ability to properly manage fuel costs, not the level of pilot compensation.
Of course we are making the assumption that there will be customers and the airline will have a reliable, safe service to offer them. However, there is no guarantee that Delta will survive the extreme turbulence known as the U.S. airline industry. There is no guarantee that Delta will not be forced back into bankruptcy at some point. But the two salient messages are, without the right kind of people in the cockpits, there is no chance for success and low or appropriate pilot compensation does not guarantee profit or loss for any given year.
Proper pilot compensation will not cause Delta’s demise but putting experienced, well-trained pilots on the flight decks will enable Delta’s long-term success."
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Justification for increasing Pilots wages
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