Hawaiian Airlines ' dilemma over profits and pilots

Hawaiian Airlines is maintaining service through a recession, investing in new jets that can fly to more distant cities, and it has posted a second quarter profit of $28 million. At the same time, it's balking at raises for pilots unless the pilots agree to operational efficiencies that will save enough money to pay for the raises. Is Hawaiian right to do this? This tricky issue can be viewed from many points of view - the pilots, the management, the other employees who already won raises by agreeing to operational efficiencies, and the former Aloha Airlines employees, some of whom are now out of the airline industry altogether (translation: bringing in lower wages) because there was not enough airline work in Hawaii. And there is us, the customers. I thought about this while flying on Mokulele Airlines from Kona to Honolulu on Monday. I used to divide my business between Hawaiian and Aloha, and after Aloha died and Mokulele launched jet service using mostly ex-Aloha personnel, I began to book some flights on Mokulele as well as Hawaiian. Mokulele is still struggling to fill its planes, even though they have more leg room and more overhead space per passenger than Hawaiian does. The people who fly for Mokulele know how fragile employment in the airline industry can be. For Hawaiian pilots, it's partly a fairness thing. They made wage concessions during Hawaiian's unnecessarily protracted bankruptcy years, and are still waiting to get all of that back. From their perspective, what Hawaiian is saying now is that it needs operational concessions before it can undo the wage concessions. The Air Line Pilots Association, whenever it renews its call for a contract, as it did Monday after the newest profit announcement, reminds us that Hawaiian's profitability can at least partially be laid at the feet of the employees. Because this is rhetoric, I want to point out that it is not mere rhetoric. Hawaiian pilots responded to soaring jet fuel prices last year by experimenting to find the optimal trajectory of ascent and descent to minimize wasted kerosene. They even figured out places where they can slightly cut a corner, literally, on a taxiway. Jet fuel is so amazingly costly that saving just a few yards taxi travel after landing can, when multiplied times every landing times every day for a year, add up to substantial savings. If management were to defend its own insistence on further operational efficiencies, it would also cite jet fuel prices. Hawaiian revenue actually declined in the second quarter, falling below the $300 million level, and the only reason the airline was able to eke out a profit (of roughly 10%) was that jet fuel prices, though they rose from the first to second quarters, remained substantially below the second quarter of 2008. Hawaiian CEO Mark Dunkerley, when things are going well, keeps reminding everyone who will listen that a lot can go wrong in a hurry. The pilots are surely tired of hearing it. On the other hand, it is the truth. (I wonder if either side has ever considered bonus compensation that would kick in whenever and only whenever the price of jet fuel falls below a certain level. Just a stray thought.) One of the biggest threats to Hawaiian has always been, and remains, that when its routes begin to return strong profits someone else jumps in to the same corridor to take some market share. Hawaiian made a great success of service to Hawaii from Seattle and Portland and now shares both corridors with Northwest (now Delta) and Alaska. Alaska Airlines is adding other service, notably from Oakland, for which Hawaiian is the only competition. Even Mokulele could be competition for transpacific service to secondary markets in a prolonged economic recovery. In the meantime, Hawaiian Airlines has a dilemma. The better a job it does at weathering the recession, the more it fires up its pilots to recover their wage concessions of years past. That's some of the background to the Hawaiian pilot talks. Let's all of us on the outside of the negotiations wish labor and management well and hope they can find an agreement that will be good for all - including all of us on the outside!

Comments

[Eric Strasser]

What you forgot to mention is that Mark Dunkerley was recently made one of the highest paid airline CEOs, higher than even the CEO of Southwest Airlines. Hawaiian's management shares huge bonuses every time HAL shows a profit. While the Hawaiian pilots had a profit sharing provision in their last contract, which incidently, they are still operating under, the profit sharing expired when their contract became amendable. Convenient, huh?

[Joe Mocarski]

The bankruptcy you mention was in Mark Dunkerley’s own words “largely unnecessary”. Creditors were paid 100 cents on the dollar while pilots were forced to take concessions in an effort to bolster the bottom line by the threat of abrogating the contract by management if necessary. In the face of additional threats by management, we allowed the Airbus purchase to proceed, which may mean further pay cuts due to its operational efficiency. All the while management promised to take our goodwill in these matters into consideration. You can see how well that worked. The bottom line is management cannot be trusted to live up to its own promises to do what is right or fair. The shared commitment that should be our guiding philosophy has not existed at Hawaiian Airlines for some time. The fact that our pay will mostly go right back to support our communities who are our customers is a forgotten concept under the current business model - a business model that is responsible for much of the damage we see occurring in our economy right now.

[The writer is correct in mentioning that bankruptcy wage concessions by the pilots were made under implicit threat of contract abrogation. Companies in Chapter 11 receivership have the right to accept or reject any contracts they had going into bankruptcy. The assertion that the bankruptcy was largely unnecessary can be argued but it's not an untenable position: Hawaiian Airlines was taken into bankruptcy by its then-CEO and majority shareholder John Adams because the aircraft leasing business had flipped from a lessor's to a lessee's market, and he wanted to renegotiate his contracts with GE Capital for the airline's jets. Adams himself maintained at the time that the airline was otherwise in good financial condition. HMD]

[Joe Mocarski]

Frankly, Howard almost everyone including the press and the union stood by while management mismanaged and misrepresented the financial situation at Hawaiian. The only ones who lost were the pilots and eventually Adams who had to pay a paltry fine for his faulty stock by-back scheme and removed himself from the CEO position after intense pressure from Boeing alleging “self dealing”. This scheme if you remember was after Hawaiian received approximately $30 million from the Airline Stabilization Act. If done today, you would hope the reaction would be different. In addition, do not forget the failed merger with Aloha with which Adams was going to reward himself with more than $150 million. He practically admitted this in an employee meeting. The grass roots effort to prevent the merger concluded that the debt load on Hawaiian would be enormous and further concluded that the sum of the parts was vastly overstated and would put the remaining entity at risk of failure. Afterwards the pilots were rewarded with a Plan A, Plan B concessionary proposal from management. We voted for plan A, but got plan B anyway which amounted to not only concessions, but also furloughs for nearly the bottom third of the pilot roster. All this while Adams paid his company a $2 million annual consulting fee. As this was going on, top management abandoned ship to presumably avoid the fall out. The CEO, Paul Casey left and the COO left without naming a replacement.

Enter Mark Dunkerley.

Remember that while in bankruptcy we made very closely to $150 million dollars, began service to Australia, while almost simultaneously Trustee Gotbaum was asking contract employees for concessions of approximately $11 million - that he would have turned around and asked to be rewarded with by the court. He did this anyway, but luckily, the judge did the right thing and rewarded him approximately $250,000. In actuality,
Gotbaum should have paid Hawaiian the money he squandered in the most expensive bankruptcy in Hawaii’s history: $30 million. All the while claiming he had Boeing over the barrel regarding the aircraft leases while the opposite was most likely the case.

Howard, what is really needed is an expose'. An in depth report at what really has transpired up to the present day.

Management rewards itself for mediocrity and in one Board members opinion for “waking up on third base and believing they hit a triple”.

How many concessions has management taken? If your answer is none you are correct.

Bonuses and stock options? Millions.

Also, going forward and in my opinion the purchase of Airbus's is going to prove to be a huge and expensive mistake. Nevertheless, do not worry; the pilots will come to the rescue with concessions.

[No I in Team]

The suggestion that pilots at Hawaiian Airlines have been the only ones to make sacrifices is insulting. It's this belief by many of your group that you are the only ones affected by such situations furthers the (oft-correct) stereotype that pilots are primadonnas and have a distorted perception of how the world really works. Get real and stop making the hard-working pilots who don't whine look bad.

[Joe Mocarski]

Let us be clear. All employees have sacrificed and have given concessions not just the pilots. If emphasizing the ordeal all employees shared is "whining" then so be it. If other employees who have given concessions and sacrifices would like to share their perspectives, they are welcome to do so. Attacking one employee group for highlighting their experiences is a ploy to discredit the writers and invalidate the facts presented.

[C-Dubs]

Every time I hear Mark talk, I cringe. He doesn't represent Hawaii or Hawaiian Airlines well.

Lately I've become a more devout customer of Mokulele, simply because they are still trying hard to make it work. They have all local crews (which go! doesn't) and their jets are very comfortable. And I also have come to really not like Hawaiian, and giving them my money. There hasn't been much aloha on that side for a while, and it's a reflection of the top down.

I hope the pilots will get their concessions back at least. Hawaiian is turning a handsome profit in a recession, and it ain't because Mark is buying Airbus (stupid mistake and I'll never fly them).

And all of you Hawaiian fanboys- try flying Mokulele and you'll see that there are alternatives that don't include a Phoenix-based mismanaged company. =P