- The Washington Times - Tuesday, April 24, 2001

Delta Air Lines settlement with its pilots union this week warded off a strike but it is a mixed blessing for the airline industry and its customers.
The higher labor costs for Delta and other airlines eventually will mean higher ticket prices for consumers, according to industry analysts. In addition, the financial turmoil could spur airlines into a new round of consolidations.
"Ultimately, this has to be paid for and the only place you can pay for it is through a fare increase," said Darryl Jenkins, director of George Washington Universitys Aviation Institute. "The only question is when you can engineer the fare increase. This is not an insignificant amount of money were talking about."
The tentative settlement gives Deltas 9,800 pilots the highest pay scale in the airline industry at a time when most major airlines are reporting quarterly losses.
In an industry where one airlines labor concessions create pressure on all airlines, two other major airlines and regional carrier Comair are currently in contract negotiations.
Deltas tentative contract reached Sunday will cost the third-largest U.S. airline $2 billion to $2.7 billion if cockpit crews approve the agreement, analysts said.
Delta pilots wages will rise 24 percent to 39 percent, depending on the planes they fly and their seniority, by the end of the four-year contract, said the Air Line Pilots Association, the union representing Deltas pilots.
The Delta pilots salaries would average 1 percent higher than the industry record contract won by pilots last year at UAL Corp.s United Airlines.
A Delta pilots council is scheduled to decide by Monday whether to send the tentative contract to its membership for a vote.
To reassure customers, Delta might lower ticket prices, industry analysts said.
Other airlines are expected to keep fares low during the peak summer season.
After Delta announced the labor agreement, it released a statement saying, "We are gratified to have a tentative agreement that benefits everyone associated with Delta Air Lines. Customers can continue to book flights on Delta with confidence."
However, Robert Milmore, an airline industry analyst for the Wall Street financial firm Arnhold and S. Bleichroeder, said that if early signs of recovery continue for the economy, airline fares could rise in as little as one year.
"The wild card is the economy," Mr. Milmore said. "As long as the economy remains sluggish, its not the environment for airlines to attempt to raise fares because it would weaken demand. As these contracts come into place, assuming the economy turns around in the next 12 to 18 months, you might see some upward pressure on fares as airlines try to offset these labor costs."
Rising labor costs also are feeding a trend of mergers and acquisitions in the airline industry, he said.
"It makes it a more difficult environment for airlines to operate in," Mr. Milmore said. "Some of these airlines are arguing that in order to compete effectively, you need bigger organizations."
Among the recent consolidations are Americans acquisition of bankrupt Trans World Airlines and Uniteds plan to merge with USAirways, based in Arlington.
Together, United and American would control about half of the U.S. airline industry.
Both airlines are currently in labor negotiations.
Delta, the nations third-largest airline, has officially said it hopes to remain independent. However, industry analysts say a Delta merger with Continental Airlines might be inevitable.
"Delta and Continental believe that longer term they would have to get larger through consolidation to compete effectively," Mr. Milmore said.
Glenn Engel, an airline industry analyst for the Wall Street financial firm of Goldman Sachs, said airlines are caught in a spiral of escalating labor costs while also dealing with higher fuel prices and a lackluster economy.
"Uniteds contract set out a new high on where pilots contracts will settle out for the airline industry," Mr. Engel said.
Although the short-term effect would not be felt by consumers, a long-term result is unavoidable, he said.
"What it means in the long run is that airlines wont be buying as many planes as their costs go up," Mr. Engel said. "A lower supply of seats over time means higher prices."
The labor disputes at the major airlines are starting to filter down to smaller airlines, Mr. Engel said.
"Even lower priced airlines get pressure from the bigger guys," he said. "In the long run, their prices will go up."
The most recent example of smaller airline labor unrest involves Comair, the regional air carrier that operates in 95 midsized U.S. cities. The airlines 1,350 pilots went on strike March 26.
Company and union negotiators are set to meet tomorrow through Friday in Washington with federal mediators.
Andy Deane, Air Line Pilots Association spokesman, said he doubted the labor contract won by Delta pilots and other airline unions would significantly affect the airlines finances.
"The amount of a ticket that covers the pilots labor costs is relatively insignificant, probably the cost of a hamburger and a Coke," Mr. Deane said. "There are many other things that are more volatile that would impact the cost of a ticket, such as the price of crude oil."
He also said that industry consolidations were a result of deregulation rather than the unions greed.
"In every industry that is really deregulated, you find that the participants end up cooking down to about two or three major players," Mr. Deane said.
"We heard that 20 years ago when they were first discussing deregulation."

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