The War Of The Skies

I am a self declared AvGeek, or at the very least an AvEnthusiast, if there was one.

I used to consult for a living several years ago. It meant taking a flight out of my home airport (CLE at the time) every Monday morning and returning late Thursday night. Did it over and over and over for a few years.

Airports and air travel can quickly get boring unless you develop a hobby. So I did. The AvEnthusiast hobby, where one can recognize airline tails, their livery, aircraft types (and their variations) etc. Which basically means I can tell a 777-300ER from a 777-200LR.

So when the war broke out, it piqued my interest. Yes, the war. The war between the US Big Three and the Middle East Big Three.

For the uninitiated,

US Big Three (US3) = American, Delta and United

Middle East Big Three (ME3) = Emirates, Etihad and Qatar

The two have been at it for several years now, squabbling like boys in a schoolyard.

At the heart of the matter is international traffic to/from the US (and in some cases, EU). The US3 claim that the ME3 get government grants/bailouts which let’s them survive and prosper. They accuse the ME3 of unfair practices, underpaying their employees, violating fifth freedom rights (more on freedoms of the air) and so on. There’s a litany of accusations. Leading the tirade is Delta, and its CEO Ed Bastian.

The ME3, of course, refute all allegations. They laugh at all claims of government assistance and accuse the US3 of running inferior operations, while extolling their own newer infrastructure and aircraft. Some of their executives have snickered at the product being offered by the US3, saying it is sub-par and not up to international standards.

Let’s focus on that last item – the product. Airlines offer hard and soft products. The equipment (aircraft), the seats on offer in the different classes, their lounges etc. form the hard product. The service provided (on ground and in air) is the soft product.

The last time I flew the US3 on a long haul was in September 2014. As a disclaimer, I have to say this was before Delta’s Delta One (DO) and United’s Polaris (UP) J-class products. I haven’t flown those products since their launch.

That year I traveled internationally four times, 3 trips to India and one to Bucharest, Romania, all on different airlines. I flew Emirates (EK), Lufthansa (LH), Austrian (OS), Delta (DL) and Qatar (QR) on my international flights. All, except EK was in J class, pretty much each airline’s premier product (EK and QR offer F class which I won’t go into). Since 2014, I have traveled exclusively on EK’s J class several times on their 777s.

I have to say the ME3 executives are absolutely right in their assessment of the product on offer by US3. DL’s soft and hard products left much to be desired. The 777-200LR they used on the DXB route (the route has since been discontinued) was old and dare I say, rickety. The herringbone seating arrangement, with each seat having aisle access, was the only thing to write home about. The seats felt old, the TV console kept falling out, one of the seat functions didn’t work. When you pay premium price, you expect premium product. Specially on a 14+ hour flight.

What left me pissed was the soft product. The service was ordinary. The flight attendants were hit or miss. The food was OK. The worst part, they ran out of bread about 3 hours before landing. How can you run out of food in J class? When asked, the flight attendant said, “we’ll be landing in a couple of hours so hang on”. WTF? You don’t pay $4K for a plane ticket to be told to wait three hours for food.

Contrast this with EK or QR (let’s leave the European carriers alone for now). EK sends a chauffeur for pick up and drop off if you’re traveling J or higher class. Nice gesture. Their flight attendants are smiling and willing to serve all the time. When you go talk to them in the galley they’re willing to listen and talk, something DL’s FAs seemed reluctant to, with their one word answers and a general ‘keep away’ disposition. EK’s seemed to love their jobs. They are from all over the world, and live in Dubai, far from their homes. Yet they seemed happy with their work.

As for the hard product, EK and QR leave US3 in the dust. Although to give them the benefit, they’re relatively young. Which means their aircrafts are young. But their cabins exude a freshness that was missing in DL. I have to say QR’s was the best, even better than EK. The In-Flight Entertainment (IFE) at both EK and QR is awesome, offering hundreds of movies and TV shows. Their TV screens are large. Again, I haven’t flown DO or UP.

Their lounges are a-mazing! Large, airy and modern, the business class lounges at both DXB and DOH are a welcome bliss, compared to the small, cramped ones at US airports. The Admiral Club lounge at JFK (which I used while flying out on QR) seemed trashy in comparison. I mean, this is JFK. How can your international lounge be so shitty?

I wish to see US3 compete with ME3 on a level playing field. I believe government assistance is eventually detrimental to any private organization. So if ME3 is unfairly benefitting from their governments, US3 have reason to complain. But at the same time, I would like to see better products from US3. People turn away from your product. They don’t care much about your complaints or concerns. So fix your product first.

On Jul 13, 2017 Delta (Nasdaq: DAL) posted a $1.89 billion pre-tax income.  Which is a good chunk of change. I wish they invest in their service offerings. I wish they took a long, hard look at their product and did some honest introspection. Modernize your equipment (seriously, get rid of those MD-88s), invest in infrastructure, refresh your cabins, rebuild your lounges if you have to, have the FAs smile – genuinely.

You build it, we’ll come back!

The Case Against Minimum Wage Hike

Before you brand me as anti-labor, back off!

All across the country there’s a big movement, to increase minimum wage (MW) across the board. Several states have enacted laws to make a big jump – from 10% to 100% – spread  over the next few years. Unsurprisingly, California is at the forefront, with a schedule to raise it to $15.00 by 1/1/2022.

I understand the need to increase MW. I totally do. Wages haven’t kept pace with inflation over the years. The MW earners have the same right to basic needs as the rest of the world. All that is great. But there’s another side to this coin. Nobody wants to look at that side.

Let’s first see what industry the majority of MW earners belong to: Retail. Most retail is small business. Small business has been struggling for several years now, under onslaught from technology and eCommerce. The margins have shrunk exponentially in the 21st century. Most consumers do not notice it, because prices haven’t gone up commensurately. Business owners are loathe to increasing prices. It drives customers away. They would rather take a hit on the margin than raise product prices.

Case in point: Third-Party Delivery Vendors (TDV), like UberEATS or GrubHub. TDVs charge up to 30% commission on every order, from the business. Let’s say I am a restaurant owner selling a sandwich combo for $9.99. You come in for a takeout, pay $9.99+tax and leave. If you order that through a TDV, $3.00 goes to them. See the problem? I could raise my pricing on UberEATS. But will you pay $13.00 for that same sandwich combo that costs $9.99 in the store? Thought so!

How is this related to MW hike? Well, labor is a variable cost. Standard labor expenses in retail is between 30 and 35 percent. This, at a time when the Federal MW is $7.25. Increase that to $10 or $15, do the math and calculate the labor expenses for a business. It’ll make it impossible for small businesses to survive.

Now let’s look at your typical MW worker. Who is he or she? Why do they take up this retail job? What’s in it for them?

Traditionally, these were ‘stepping stone’ jobs. College students, looking to pay their living expenses working part time. People looking to learn a few skills and move up, make a life for themselves. Find a corporate job, start a business etc. The whole idea was that these jobs were temporary for the workers. Not many were interested in making a career out of these jobs. They didn’t come with any benefits. Unfortunately due to social, economic and political reasons these jobs have now become more permanent.

Most of the times these temp workers went on to take up a job at a manufacturing unit, thus setting themselves on a path to a career: shop floor technician to lead to manager to hopefully one day a plant manager, or even a corporate executive. Or, they went on to become retail managers, again setting themselves on a more stable career path within the industry. The decline in manufacturing in the US hurt MW workers dearly.

On the other hand, giant retail companies started offering benefits even for temporary and MW jobs, lulling the workforce into being quite happy working as a barista or a burger flipper.

I am not implying these jobs are any ‘smaller’. As a student at Cleveland State, I have been a busboy, a newspaper delivery person, a parking lot attendant, a clothing retail worker and some more. I know and understand the significance of these jobs.

Let’s now look at the other side of the counter. From our scenario before, if MW increases to $15 from the current $7.25, as a restaurant owner I am left with two options.

One, automation: To quote Mark Watney from The Martian, business owners will “science the shit out of this”. You’ll see automation from order taking to delivery systems. Requires tremendous initial investment but the equipment will pay itself off in a few years. Automation Industry 1, MW Workers 0. Game over! (Ever thought why big tech companies push for MW raise?)

Two, price increases. The business owner raises his prices by 10-25 percent to offset his costs. Problem is, his customers’ salaries won’t go up 10-25% over the same time period. As a result, discretionary spending is slowed/stopped. End result, the business closes down eventually. Oh, what happens to the MW workers when businesses shut down? My guess is they won’t have jobs.

Business owners understand the struggles of MW workers. They really do. They need to be involved in any far reaching regulation about wage increase. Their interests need to be taken into account. Somehow they are made out to be the villains in this. They are not. Work with them. Maybe lower taxes. Work with the landlords to lower their real estate taxes, thus enabling lower rents. It’s all about adjustment.

Any unilateral wage increase statue will only end up being a disaster for everyone.