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Flight attendant jobs are not good long-term careers
By Vaughn Cordle, CFA / April 2007
My wife has been a Delta flight attendant for over 20 years, so I know the adverse nature of the job.
During a recently taped CNN interview, I called flight attendants the unsung heroes in the industry
and also said that fatigue is a real problem that needs to be addressed; unfortunately, this was not
included in the aired interview.
Many in labor believe that they are being exploited by management, who represent the
shareholders. Shareholders cannot earn opportunity costs, and this reflects the bad fundamentals
of a fragmented industry. It could be said that they, too, have been exploited by management.
What are the opportunity costs for a flight attendant? In other words, what real and verifiable
opportunities for earning money do they give up by choosing this field? Should a flight attendant be
paid more than someone who works at Starbucks or less than someone who designs websites?
What is the proper pay and how should it be determined? Flight attendants are there for the safety
of the flight, but given the statistics on accidents and incidents in the industry, for all practical
purposes, flight attendants are mile-high waiters 99.99% of the time, and their pay tends to reflect
that.
Savvy shareholders know that airlines are not fit for long-term investment and trade the shares
frequently. Perhaps employees should similarly view the airlines as unfit for long-term
employment. Many flight attendants turn the job into a career because union seniority rules provide
incentives for the senior to hang around; but, in my view, pay and work conditions will continue to
deteriorate in real terms over the long run, especially for the old-line network airlines.
Compensation and work rules are negotiated, and both parties—labor and the representatives of
capital—have to agree to the terms. Both parties require a certain return for what they put in, and if
they perceive that they are unfairly compensated for that, there is a problem. And, of course, there is
the issue of how much the airline can afford to pay given a required or reasonable rate of return on
shareholder equity. Both employee and shareholder can walk if they are not happy with their returns.
The bottom line is, as long as the industry is fragmented and hyper-competitive, work rules and
wages will always move toward lower compensation in order to increase productivity. Old airlines
with old employees and assets cannot keep up with young, fast-growing airlines that do not have
legacy costs. Consolidation would help in this regard because advantages of synergies could be
divvied up among the key stake holders: customers, employees, and shareholders. Mergers are not
a long-term solution, but they may be the best option for those businesses that are failing in the
marketplace.
Employees of legacy airlines are complaining about FAA minimum work rules, but we don't hear
these complaints from the younger airlines, which have always had greater employee productivity
and lower pay. Perhaps employees at the major airlines are as tired and used up as the aircraft and
assets the airlines deploys in an increasingly competitive marketplace. No-growth airlines with over-
leveraged balance sheets and inadequate earnings are unfit for investment. Similarly, perhaps the
flight attendant's job, like that of a waiter in a crowded diner, is not fit to be a long-term career either.
By Vaughn Cordle, CFA / April 2007
My wife has been a Delta flight attendant for over 20 years, so I know the adverse nature of the job.
During a recently taped CNN interview, I called flight attendants the unsung heroes in the industry
and also said that fatigue is a real problem that needs to be addressed; unfortunately, this was not
included in the aired interview.
Many in labor believe that they are being exploited by management, who represent the
shareholders. Shareholders cannot earn opportunity costs, and this reflects the bad fundamentals
of a fragmented industry. It could be said that they, too, have been exploited by management.
What are the opportunity costs for a flight attendant? In other words, what real and verifiable
opportunities for earning money do they give up by choosing this field? Should a flight attendant be
paid more than someone who works at Starbucks or less than someone who designs websites?
What is the proper pay and how should it be determined? Flight attendants are there for the safety
of the flight, but given the statistics on accidents and incidents in the industry, for all practical
purposes, flight attendants are mile-high waiters 99.99% of the time, and their pay tends to reflect
that.
Savvy shareholders know that airlines are not fit for long-term investment and trade the shares
frequently. Perhaps employees should similarly view the airlines as unfit for long-term
employment. Many flight attendants turn the job into a career because union seniority rules provide
incentives for the senior to hang around; but, in my view, pay and work conditions will continue to
deteriorate in real terms over the long run, especially for the old-line network airlines.
Compensation and work rules are negotiated, and both parties—labor and the representatives of
capital—have to agree to the terms. Both parties require a certain return for what they put in, and if
they perceive that they are unfairly compensated for that, there is a problem. And, of course, there is
the issue of how much the airline can afford to pay given a required or reasonable rate of return on
shareholder equity. Both employee and shareholder can walk if they are not happy with their returns.
The bottom line is, as long as the industry is fragmented and hyper-competitive, work rules and
wages will always move toward lower compensation in order to increase productivity. Old airlines
with old employees and assets cannot keep up with young, fast-growing airlines that do not have
legacy costs. Consolidation would help in this regard because advantages of synergies could be
divvied up among the key stake holders: customers, employees, and shareholders. Mergers are not
a long-term solution, but they may be the best option for those businesses that are failing in the
marketplace.
Employees of legacy airlines are complaining about FAA minimum work rules, but we don't hear
these complaints from the younger airlines, which have always had greater employee productivity
and lower pay. Perhaps employees at the major airlines are as tired and used up as the aircraft and
assets the airlines deploys in an increasingly competitive marketplace. No-growth airlines with over-
leveraged balance sheets and inadequate earnings are unfit for investment. Similarly, perhaps the
flight attendant's job, like that of a waiter in a crowded diner, is not fit to be a long-term career either.
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