3 Links I Love: Delta Bonuses, Mesa International, Airline Winners

Delta, Links I Love

This week’s featured link

SCOOP: Delta Air Lines Is Making Large Bonus Payments To Management EmployeesView from the Wing
Is Don Carty now running Delta? This is not a good look. I hear other airlines have done something in this general direction but more under the radar. This difference is that those other airlines are union and Delta is not. So anything Delta does has the potential to unionize a workgroup, something it has generally hoped to avoid. This won’t help.

Image of the Week: This wasn’t in the trip report, but I snapped this shot of my CRJ-700 in the morning light upon boarding in Long Beach. Nothing like ground boarding to start a trip right.

Two for the road

Mesa Air Group Eyes International GrowthMesa Press Release
Can someone please explain who a joint venture between a British company and an American one somehow creates a regional carrier that’s European? This sounds a little nutty to me. I may have more on this next week, if I can get the post together.

The Airline Industry after Covid-19: Value Extraction or Recovery?American Affairs Journal
Hubert Horan wrote this lengthy article talking about the recovery and how airlines are making it more difficult on themselves. There’s a lot here, including a lengthy history section in the middle. I’m not sure I agree with the point on filing bankruptcy so early, but I do agree that these bailouts aren’t saving airlines. They’re saving management and equityholders, which should not be a priority.

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20 comments on “3 Links I Love: Delta Bonuses, Mesa International, Airline Winners

  1. Agreed on the Delta bonuses. Right or wrong, deserved or not, in line with the market or not, giving bonuses to management after you’ve been nudging rank and file people off the payroll and taking government handouts is just a really bad look, like when the automaker execs flew to DC in their private jets a decade ago asking for money.

    I’m surprised that I haven’t seen the usual political rhetoric on the Delta bonuses… Given all the noise months ago about companies spending their cash flow on share repurchases only months before taking money from Uncle Sam, I would have expected something similar on the Delta bonuses, especially from labor-focused politicians representing states without DL hubs, but unless my Google-fu is weak today it doesn’t appear to have happened. Delta’s PR team seems to have done a good job historically at controlling & spinning the narrative, and perhaps they are working their magic again.

  2. Part of me wishes that I could read You Know Who’s screed about how the Delta bonuses don’t just make sense but are really the smartest thing any company has ever done in the recorded history of corporations.

    And then the sane part of me returns!

    1. Is he not here anymore? I always wished there was a way to block his comments, but, now that you mention it, it is strange to not see his completely biased posts.

    2. Nothing is stopping Tim from participating. I told him he was going to be put under moderation for a bit, but his regular comments would have been approved. He just stepped over the line too many times so this was like a warning. He didn’t like that, apparently, because he went scorched earth and started using fake addresses.

      1. You were very patient and accommodating, the moderation you suggested was quite reasonable and only after myriad unheeded warnings about being inflammatory and making personal attacks. If he deemed that to be unreasonable and then went “scorched earth” that basically tells us everything we need to know.

  3. From where I sit, Delta has undone a good 10-12 years of labor goodwill with this move. Normally, there is a set of acolytes that find a way to rationalize ANY move the company makes. Not this time.

    The C-Suite has been pushing a narrative of us “being in this together,” and shared sacrifice. Whether or not you believe that, it’s objectively true that they just completely undercut their own work. Lots of people I speak to feel pretty betrayed right now.

    It’s also worth noting that most frontline/shift managers are not included in this program.

    The company put out an anodyne response for the press that focused on bringing upper management salary cuts in line with the rest of the rank and file. What they forgot–or chose to ignore– is that a lot of people making $20-25k a year took a 25% cut for most of 2020. That has a much larger impact than someone making 250k taking a 30% cut.

    The march toward being like every other carrier seems to be gaining speed.

  4. Cranky, I agree with you about ground boarding. I now realize that thinking jet bridges aren’t so hot must be a West Coast point of view. It’s not quite so fun in a blizzard or thunderstorm.

  5. It continues to bother me that so many people (like Hubert Horan in his article) almost seem to be rooting for airlines to go bankrupt or be liquidated. As Doug Parker once said at the National Press Club, “Bankruptcy cannot solve a revenue problem.” And what we have here, in my humble opinion, is a revenue problem.

    Rhetorical question: Isn’t preserving and enhancing a company’s value part of a CEO’s job? No one wins in bankruptcy court except the lawyers.

    Did airlines grow too big leading up to 2020? Maybe. But who defines “too big”? Isn’t that the function of the marketplace? It seems to me that 85% load factors are evidence that the polar opposite of Mr. Horan’s observation was the case. The severity of this pandemic and its impact on the economy is something that simply couldn’t be predicted.

    Howard Cosell constantly observed that hindsight is 20/20. And while history is important to remember at times like this, we also have to consider what’s different. Today’s airline industry is much more consolidated (or less fragmented) than the one that existed in 2001 or 2008. To those who think more consolidation is the answer, do we really want “AmAir”? Ultimately, the only real, long-term solution for the current crisis the airline and tourism industries are facing is increased revenue. Even if a company decreases its costs to zero, it still has to generate income. And no one knows how fast airline and tourism industry revenues will recover. To reiterate Doug Parker’s observation, “Bankruptcy cannot solve a revenue problem.”

  6. Alaska restructured its annual performance bonus system smack in the middle of the pandemic, when things were looking incredibly dire halfway through 2020, so that employees could *still* get significant bonuses, even though it was the worst year in the airline’s financial history and they’d received a massive, unprecedented government bailout.

    In fact, part of the restructured bonus system involved a goal of getting to “cash burn zero,” for which they declared victory even though “cash burn” had not, in fact, reached zero! (It was still closer to $500k per day in December, but they decided it was “close enough” to be worth giving out a big ole bonus.) These bonuses have increasing percentages, ranging from 5% of earnings for frontline but soaring astronomically to 120+% for the already highly-paid top, where it is a core part of their compensation packages.

    On top of all of this, during this time of insolvency, Alaska has been spending its money on giving certain members of management “retention equity,” a.k.a. stock awards. They’ve been handing out equity to all sorts of middle and upper management like candy, and the CEO and four others received $2 million in “executive retention” stock bonuses in November. November! Remember what was happening with air travel in November?

    In the midst of all of this, the airline couldn’t let “a good crisis go to waste” (a frequently used management term in the last year) to trim away high-cost, high-seniority labor by convincing them that the airline was in dire straits and their early retirements were necessary to keep the airline afloat, along with just plain laying off hundreds of people. Apparently those “sacrifices” were intended to just make sure that the top brass did not have their excessively imbalanced, unnecessarily wealthy lifestyles interrupted, even during the worst year in the airline’s history. Deep in the midst of its most desperate hour, Alaska traded actual careers, meant for actual, hard-working humans, in exchange for bonuses and wealth enrichment for the top.

  7. The press release regarding the Mesa Air development simply doesn’t make a lot of sense! Mesa headquartered in the USA, Gramercy based in the U.K. and the objective is to set up a European based JV. Why would you set up a “European” operation in the U.K. when the U.K. just left the European Union?
    CG – you are correct – there is clearly more to this, and looking at the principals involved it could be very interesting. But the poorly written press release doesn’t help! I look forward to what you learn!
    Thanks for all that you do!

    1. The press release doesn’t say that Gramercy will own any equity once the AOC is awarded. So what needs to happen is that EU investors need to own the other 51% at that point and then it counts as an EU airline. I think that Gramercy is just putting in their stake (of an unspecified amount) until they find the eventual owners, and then take their money back (plus a significant profit for making the transaction work).

  8. Why is the government giving money to airlines if they are paying out bonuses? There are businesses that are struggling because of the pandemic and can not even think to pay a bonus. The should get aid first.

  9. Delta frontline employees should be enraged by the bonus money for executives, but customers should be annoyed, too. The Delta website is often unable to complete simple tasks, necessitating telephone calls and astoundingly long waits to speak to a customer service rep. My experience is that flight crews and Sky Club staff are still great, but other customer service channels have markedly plunged in quality over the last year and show no signs of improvement.

    1. Hindsight is 20/20, but I think it would’ve helped a LOT if there had been a way to redirect calls to local airports. I assume technology could’ve supported that?

      There was obviously a crush of inbound volume, but as you note, many were simple in nature (rescheduling flights, seeking a refund, etc.). Reservation agents were going full speed, while agents at ATO’s were standing idle. Most I know would’ve jumped at the chance to help passengers and clear the backlog.

  10. Mr Horan, the author in the American Affairs journal writes of AA’s CEO Doug Parker and his rejection of the Chap 11 option as though Mr. Parker is misleading people. Mr. Horan writes:

    “Having been involved in multiple prior bankruptcy cases, Parker fully understands that bank­ruptcy would not mean the failure of American Airlines’ business. He is simply focused on protecting its current shareholders from failure.”

    Mr Horan makes it crystal clear that he has no understanding of what Chapter 11 does to an airline, or for that matter to any company.

    He sounds like a mere “quant”, or “bean counter” if you will, who has no sense of how such serious things like Chap 11 impact people and communities.
    For example, he completely fails to recognize the impact to employees, and most especially the impact to their Pension Programs and lifetime earnings devastation in their seniority based systems. He completely fails to mention that Chapter 7 liquidations can and do happen, which devastate whole communities, vendors and families for a generation or more. Examples include: Pan Am, Eastern, Swiss Air, Sabena, Branniff, etc.

    Mr. Parker on the other hand understands his responsibility to his people, the communities AA does business with, his customers, and yes, the people who invested and put their TRUST in AA and loaned AA money and invested in AA.

    Mr. Horan needs to lift his head up and realize it takes more than being able to operate a spreadsheet to see the future and be successful.

  11. It really is amazing to see what DL has done, as I would have thought they’d learned from the mistakes of their peers and continued to build on the positive momentum with work groups. They’ve undone a decade of goodwill in one terribly miscalculated move. The main takeaway from this is affirmation of the general rhetoric that top level execs really are THAT out of touch with the lower level sentiment in their own companies.

  12. FWIW, on the original Delta article, a commenter (“J”) identified himself as one who had just received the “bonus”. He stated the “bonus” was actuall of his variable (i.e, performance-based) salary–separate and distinct from Delta’s annual bonus. It’s an important distinction. Across industries, as individuals assume leadership roles, increasing percentages of “base” compensation is often tied to performance and thus variable. “J” indicated 10% of his pay was variable (performance based). “J” stated he took the same 25% pay cut as everyone else, and prior to his “bonus” he had actually taken a 35% pay cut. This “bonus” was designed to bring his level of sacrifice in line with other employees. He indicated he did not receive a “bonus” which would have been tied to profitability. The “bonus” idea seemed pretty outlandish until I read “J’s” explanation. Now it seems quite appropriate and likely explaining why the story isn’t getting broader traction with Delta employees or other media outlets.

    1. As a current Delta employee I can say for my workgroup, Line Maintenance, that I have not heard one person complain about the “Bonus” for merit level employees.

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Cranky Flier