328. Do Pilot Unions Really Make You Richer? The Economics of Collective Bargaining

Airline pilots love to debate (and sometimes complain about) unions, but do pilot unions actually make pilots “richer”? In this episode of A Wiser Retirement® Podcast, we break down what unions really change, what they don’t, and why the answer depends on how you define “richer.”

Related Podcast Episodes: 

Ep 259. What Pilots (& Others) Should Consider 5 Years Before Mandatory Retirement

Ep 273. How Early Retirement Affects Pilot Benefits

Ep 322. How Airline Pilots Can Make the Most of Their Profit-Sharing Bonus

Related Financial Education Videos:

When Should Pilots File for Social Security?

What Would a Change in FAA Retirement Age Mean for Pilots?

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Transcript

Framing The Big Question

SPEAKER_04 0:00

Do pilot unions really increase pilot pay? Stick around to learn more about the economics of pilot unions.

SPEAKER_01 0:06

Welcome to a wiser retirement podcast, where we cut through the noise and bring you real, honest conversations about investing retirement and building lasting wealth. No sales pitches, no gimmicks, just everything your financial advisor won't tell you.

SPEAKER_04 0:22

Welcome to the Wiser Retirement Podcast. I'm Casey Smith. Today I'm joined with William Midcalf, financial advisor, uh CFP here at Wiser Wealth Management. Today we're going to talk about do pilot unions really make you richer? The economics of collective bargaining. Hey, William. Hey, how's it going? Doing good. So you might wonder what does William know about this? Uh, I will say William is a uh very, very good uh researcher. He gets down into the weeds. And this is a topic that we see pop up uh online quite a bit. So I thought we would do a podcast and kind of wade in on uh union or no union. Yeah. Uh my background is I was in a union for uh 10 years of the 12 years I was flying. So I've been non-union and I've been in a union. Okay. And so uh I have my uh uh opinions uh of whether a pilot union is helpful or not. I will I will say uh pilots like to complain about a lot of things. Yeah. And a lot of times they complain about the union very much so. Yep. But let's let's uh dive into our topic today. So first of all, does a pilot union make you uh I hate this word, richer. Richer, wealthier. Yeah, yeah. Well, I think you're in charge of whether you're wealthy or not, and your your employer could decide if you're rich. Yeah, that has to come do with with what you get paid, right? Yeah. So that's why it's in a consumption. Rich rich means you have high wealth means you actually have resources or assets, right? That's true. You don't you don't spin it all in disposable items, right? Right. So so let's just talk about what richer or in pilot terms, what should richer mean?

SPEAKER_03 2:02

Yeah, so I guess there's a couple things that came to our minds. Um, you know, higher hourly rates and total compensation. Obviously, that's that's important. Right. Um, you know, there's some things that come in with that, you know, um, multi-year raises and and sort of things like that locked in, you know, predictable schedules, um,

Defining “Richer” For Pilots

SPEAKER_03 2:24

you know, benefits that compound wealth, and then job security and career management. So I don't know, you know, of those four things. Um, maybe there's certain things that you think are more or less important, but um, you know, I think all of these things are very important. And that's those are those the things that we came up with when we're trying to sort of define what that means for pilots.

SPEAKER_04 2:45

Right. So richer things that affect your income, ability to choose to fly more or not, I guess. Yeah. Um your 401k can make you richer, profit sharing can make you richer. Uh per diem, the the the amount of money you get paid tax-free when you're away from base. Uh that that can be meaningful, especially if you can live below that number. Right. Depending on what kind of flying you're doing, maybe. Uh, and then there's things that make you richer because you um can protect your flying. So there's a thing called scope that uh the mainline pilots set how many regional jets can be flying for a particular airline. So there's like a max, right? Okay. So that determines if your pilot group gets most of the flying or if it can be outsourced to uh the regional.

SPEAKER_03 3:31

Okay.

SPEAKER_04 3:31

Right. So that kind of ebbs and flows over time. And then obviously uh clear upgrade rules and then uh base uh base stability. So if you you're not gonna get richer if your base opens for six months and closes. Yeah uh live a better life. So I think if we determine or if we phrase our conversation day in richer means those things, right, then then I think we could all kind we can kind of be on the same same page. Yeah.

SPEAKER_03 4:05

I think that's fair.

SPEAKER_04 4:06

So let's start with a thesis.

SPEAKER_03 4:09

Yeah. So, you know, unions uh can increase the price of uh pilot labor, but wealth depends on career duration and you know stability, and obviously using your bargaining leverage.

SPEAKER_04 4:20

So our thesis is yes, pilot unions increase pilot pay and lifetime earnings, but they don't create wealth out of thin air.

SPEAKER_03 4:28

Right, right. Right, because you as a pilot obviously are very valuable because you have a very specific skill set. And we'll actually get into that when it comes to, you know, discussing um airlines that have unions or that are unionized versus non-union. Yep. Um, and there's some nuance that comes into play there, but basically, you know, either way, you're gonna be paid pretty well compared to the average American, just based off of your, you know, the severity of what happens if you go wrong. So you have to be really good at what you do. Right. Um, but also just the, you know, training and all the things that goes into to giving you that skill.

SPEAKER_04 5:03

So if you're if you're at an airline that has no unionization, uh, and we're strict strictly talking about pay, your pay should still be relatively high because, as you mentioned, we have extreme skill and certification requirements. Right. So

Training Hurdles And Labor Scarcity

SPEAKER_04 5:20

it takes a, it takes a there's a bit of buried entry. You don't just sit there one day and go, I think I'll go fly that thing over there. I'm gonna apply for that job. Right. Uh you you start in a uh Cessna or a Cirrus or a Diamond or something like that, and then you go to flight training school, and then you hope you get picked up by you have to have 1500 hours or 1100 hours in some some circumstances. You get picked up by not Delta American or your nine ed, you get picked up by a regional carrier, flying a regional jet. Yep. Uh, and then from that point you're building time in the right seat as a first officer, and then you uh get promoted and move to the left seat. So now you're in charge of the regional jet and now you're a captain. Uh, but you have to have so many captain hours to then go apply at American Delta United, right? Right majors. Now, yeah, there were some shortcuts. Uh, there were there were schools that were putting people directly into the right seat of like Spirit and Frontier uh and other airlines, which all have tremendous safety records. Yeah. Uh so it has nothing to do with skill. We just how we got to the thousand eleven hundred and fifteen hundred is a little sad. Uh there was a uh airline called Colgan Air that uh put a turboprop into a house in Buffalo on landing, uh, and they they basically uh uh stalled and went uh just kind of spiraled or not spiral, but I think they just kind of pancaked all the way down into the this house. And after the congressional investigation, they determined that we have to have more flight hours and it had really nothing to do with that, but it was kind of Congress's way of saying we solved the problem. Doing something right, right? Yeah. Um so then so we have to have get over this hurdle, which has become uh uh a bit of a sticky point in the industry to get people out of that and into the into the regionals. So anyway, um it takes it takes a lot of certifications to get to that point. Uh if you want to switch, so if you want to change your aircraft type rating, so a Boeing 737 pilot cannot just walk out and go fly an Airbus. Right. They have to go through training again inside the airline. Airline pays for it, but they have to go through training again in order to um to do that. So it has a it's a high cost. Or if an airline says we're getting rid of all of our seven threes or when I get air buses, every single one of those pilots has to be trained. So you then you have to hire training pilots. Right. So the bigger the airline gets, the bigger training the training the facilities get, right? Right. So so that has uh uh a buried entry. Uh and then we have obviously critical uh uh safety is a critical role. So you want to hire competent pilots. There's some there's some suggestions that perhaps uh the DEI hires uh are have have not really uh helped uh the the safety situation. We've had some regional issues. We had a RJ get upside down on Toronto runway last year. Yep. Uh that that that actually had I don't think had to do with time because it it was a bad pairing. You had a simulator instructor who you think is okay, they're in charge of training, but flying a box is very different than flying an airplane. Right. And then so you had him in the left seat and you had a new first officer in the right seat. That's a bad combination. Yeah, you you should have your sim instructors out flying with seasoned people in the right seat, is typically how that should work. Uh, so that that was an airline uh pairing issue, in my opinion. Uh, we have limited global supply of c uh pilots. So there's been a shortage really since the COVID era where we retired all of our senior guys because no one was flying, and then all of a sudden everybody starts flying. We have to go then go higher, but we can't bring back the retired guys. Now we have to start over. So there was massive, massive hires happening. It slowed down tremendously. Yeah. But but there's still going to be a perceived shortage for for a while. Uh and then also you can't scale quickly. So obviously, we saw that coming out of COVID, and uh it it's it's still somewhat that way uh now. If an airline wants to really scale up quickly, um the pilots are an issue. So that this being all said, uh, even without a union, pilots are in great demand, and so therefore the the pay should should reflect that. Yeah, right.

SPEAKER_03 9:26

Yeah, absolutely. Yeah, especially like you said post-COVID, you know, you you create a sort of artificial supply shortage in the market, and then you kind of see the the results of that over the last few years, um, with everybody basically funneling, you know, up you know the ladder into the majors and and those sorts of things, which it has slowed down. But yeah, we've seen that here. So let's talk about what unions can actually change.

What Unions Actually Change

SPEAKER_03 9:55

Yeah, so um I think a good way there's a couple things that we have here, but I think one thing to to consider is you know, as far as pay goes, unions basically raise the floor, not the ceiling. And so um, you know, they push base pay higher. And because you're bargaining, obviously at such a large scale, even for um, we'll probably get into this later, you know, non-union pilots, that also raises the the rate there. So that that is a perceived benefit of unions, even for non-union um aviators.

SPEAKER_04 10:28

So yeah, for for a long time, unions in the negotiation would let like the first year pilots have really low pay, and then second and third, the pay would come up quite quite quickly. Uh, that's something that sort of got fixed in these last contracts because there's such a big demand for pilots. Uh airlines had to offer an incentive to come there because they people would walk out in training, they would start their training and go, Oh man, I'm at I'm at whatever XYZ airline, but they just they just offered me and for the next year I'm better off there. Yeah. So they'll they would leave out of training and go there. I know a guy that was at Southwest, then he went to United and in training, and then he finally got the Delta offer and he went to Delta in training. He was in training for almost a year, never flew anything. That's crazy. That's insane. And for him, Delta was a lifestyle. Uh and they have a they had a higher pay, uh, but it was he was could live in a base and not commute. Yeah, United felt more stable to him than Southwest did. Uh so for different reasons for him, but he was he get that wasn't heard of a long time ago. Yeah. In the past, you like you just grabbed onto one and you held on to it. Yeah. Uh the the that part has has definitely changed. Yeah. I I'll I'll I'll say um I'll say this. Uh so as far as real-world proof, you know, what airline, what unions are we talking about? Because there's airline pilots association, which most people would associate a the pilots union being, uh, but other airlines like Southwest, they have SWAPA. They don't have Alpha, they have their own in-house union. Uh American Airlines has APA, which is their own in-house union. And then there's the Teamsters, which I don't know why anybody would sign up for the Teamsters, but uh great for truckers, probably. Well, why they run an airline, I don't know. Uh, but they have um they represent Horizon and there's another airline. Uh escapes me. I'll come back to me in a minute. So we have ALPA, Southwest, Teamsters, and then there's APA. Uh yeah, APA. We have to uh not say that our all unions are equal, right? Uh there's probably a better one uh of of the of the groups, but I don't, you know, it well, let's let's talk about railroad proof. So if you look at ALPA, uh in the last contract, there were 34 to 40 percent to 46 percent cumulative raises. Uh Southwest is the highest still at 50, but they were lower.

SPEAKER_03 12:44

They were, I think they were also later. Yeah, they got the raises later. Um, that was my understanding.

SPEAKER_04 12:49

Uh the Teamsters got got pretty big raises for Horizon, but I would argue that all the regionals were underpaid. Every single regional had significant pay increases and incentives. Yeah. I still get postcards in the mail to come back to flying, and they'll pay me $150,000 my first year. Yeah. I was like, um, no, but but where were you in 2002? Right. Exactly. Uh 2002, I got paid $18 an hour.

SPEAKER_03 13:16

Yeah.

SPEAKER_04 13:17

It my wife was a school teacher, and it took me, it cost me more to go to work than it did what I was making. But I was just building my flight time to get out of there, right?

SPEAKER_03 13:25

Right. That's yeah. That's crazy. It's a lot different now.

SPEAKER_04 13:29

So, what can they actually change? Again, I think they can push base pace higher. Uh, they can lock in scheduled raises, they can reduce the dispersion between airlines. Uh Delta had a call, or I don't know if it's a callback, but uh if United got higher rates than them after Delta negotiated, Delta would get would match United rates. Okay. So those are things that as an employee in a non-union environment, you can't do that. Southwest Airlines uh is or I'm sorry, Skywest Airlines, the regional carrier that flies for uh Delta American United. They fly to CRJs. Uh they they don't have a union. Okay. They're based out of Salt Lake City or uh Utah somewhere.

SPEAKER_05 14:07

Okay.

SPEAKER_04 14:07

Uh so yeah, they they and and they their pay isn't as competitive. Oh, here's an important part. They make flying safer. So you think about unions and the history of unions, and you think about coal mines and people were dying. Yeah, they so they formed a union. They said, We're not gonna work on these conditions. These are the these are the minimum conditions we're gonna work under. Yeah, you don't think about that with airline pilots. Airplanes, you think guys are making big money, doing really cool jobs, flying around the world. Uh, but here let me give you a scenario. So um you pilot captain comes in, he looks at the weather, and he goes, Wow, this doesn't look like the safest route to me. Like, I'm not really comfortable doing this. So, what he does is

Safety Culture And Protection

SPEAKER_04 14:50

he uh calls up the dispatcher, who's also jointly responsible for that flight and says, Hey, let's talk about this. And they go, No, we think you could probably do this. And he's like, No, I really don't want to do this. Yeah, uh, may have to call a chief pilot or something, but in the end, he's not gonna get fired because he chose not to do that. Yeah. Uh Delta had a 757 that uh the captain felt a flutter in the elevator. So he and that makes their nose go up and down. Uh, this was in the news recently. He felt the flutter, and so he wrote it up in the manual as you would normally do. He tells them, uh, we we have a problem with this. Uh, he goes home. Um he finished his flight, he went home. And the next day he comes back to work and they've given him the same airplane again. Uh, but the maintenance says uh we inspected it, could not duplicate, no, no issues found, good to go. Yeah. He's like, no, no, no, no, no. There is something wrong with that elevator. And so he he refused to fly the airplane, which kind of made uh national news. But in the end, he's not gonna get fired for that. Yeah. And it would because he refused to fly it, they ended up having to like break it down and and do all things. Whether they found anything or not, I don't know. Yeah. Um, so anyway, he refused to he refused to do that. But his job is protected. Right. That's because of the union being there. Yeah. When when I was at Colganair uh back in early 2000s, uh 2002 to 2003, borsh, I remember we would we would go into some crazy places like Rutland, Vermont. Uh, you guys that are listening who who uh are pilots, uh, we had to fly to an NDB, do one-minute time descents into a valley to shoot this localizer down the valley into the into the airport. Uh, and sometimes we get down there collecting all this ice on the airplane, you can see it, you're trying to shed it, you know, because there's no there's a turboprop. So there's no, it doesn't just melt off the wing, right? Yeah, it has these boots on the front and you have to pull a switch and then inflates these boots and the air ice comes off. And we get down to the bottom, you wouldn't see a darn thing and be like, all right, we have to go missed approach. So you have a missed approach, you climb back out and you're collecting ice on the way out, you know, crazy stuff. And so we would divert to another airport. I don't remember which one, but I felt like nine times out of ten when I went there, I feel like I was diverting for you. You only went there in the winter time and it was nasty as weather whenever we flew there. Well, when we landed, we would get a call from the chief pilot, and the chief pilot would say, talking to the captain, not to me, I was the first officer. Talk to the captain, he goes, Why'd you have to go miss? He goes, Well, we got down there, we couldn't see anything. And then the and then the chief pilot would follow up and say, Do you know how much this cost us for you to go miss? Like, why can't you just get that thing in there?

SPEAKER_03 17:28

Right.

SPEAKER_04 17:28

Isn't that crazy? Yeah. And so captains were scared of that phone call. And so they would, they would, I don't feel like I was ever on a flight, they took additional risk. Right, but you could see why they would. You could see the anxiety in their eyes going, Oh my gosh, I don't know how we see something. I don't want to get this phone call.

SPEAKER_03 17:44

And well, it might make that decision time a little bit longer.

SPEAKER_04 17:46

Yeah, yes. So, so that that's a pure example. When I got to Atlantic Southeast Airlines, that was Delta Connection. Uh, you go missed, you didn't get a call from anybody. If you did, it was, oh man, thanks for trying. Great job. Yeah, it was a big totally different culture. Yeah. Colgan was non-union, you upgraded by merit. They could skip you even because you looked at them funny, right? Where ASA, union, you upgrade in order. Now you still have to pass training and all that. It's not right, of course. It but it's more like it's your turn. You have it's your turn to try to upgrade, right? I guess is the best way to put it. Upgrade a captain from the right seat to the left seat. And they had this whole program that everybody in the right seat's a captain in training. So basically they train them the same way as a captain, but uh they, you know, this your decision-making skills as a young person needs to get honed in by seeing the correct, the correct actions. And so that's what they were trying to do. And then over at Colgan, it was just the cowboy show, right? And the guy who never went miss was the guy who was like, Oh, he's the best pilot here. He never ever goes miss. He hardly costs us any money. Um, so yeah, yeah. So the safety is my point. Yes. So I think the number one reason uh you should have a pilots union is for the safety of the people behind you, because in the end, you don't want some guy in accounting going, hey, we should be doing this because it saves us fuel, or we yeah, you see what I'm saying? Yep. So that's the number one. Uh and then number two, I think, is um uh obviously the wages, but that's what most people, airlines safety is so our travel is so uh safe that people don't think about the accidents, right? Or the culture or the negative culture, right? Uh they think they think only about um uh the pay necessarily.

SPEAKER_02 19:31

Before we continue, do you want to make the most of your airlines 401k

Beyond Wages: Credits And Schedules

SPEAKER_02 19:36

plan? We've created free 401k allocation guides for most major airlines to help you do just that. Download yours for free at pilotretirement.com. Now back to the episode.

SPEAKER_04 19:49

Oh, yeah, this is a good point. Wealth isn't just wages. So you can have you can go online and you can look at uh different pilot pay, but it really Your your pay comes down to credits. So it's what you get paid for the credits you get for the month. So that's where you could have minimum day pay. Uh you could have overtime and premium pay. You could have um stable schedules would help. Transparent upgrade and displacement rules, these are all things that aren't dollars per hour, but there are things that add to the pay. Right. So just because an airline gets paid more per hour to fly a certain type of airplane doesn't mean that you actually make more money than someone else is getting paid less per hour. Right. It comes down to these uh these different credits and how that um uh how that builds in. How how does that matter? I mean, you're a planner.

SPEAKER_03 20:45

Yeah.

SPEAKER_04 20:46

How how would how would that matter if you if you had uh guaranteed minimum pay and stable schedules?

SPEAKER_03 20:52

Yeah, I mean, it gives us the ability to plan for the long term instead of you know week to week. Yeah. So or you know, month to month. So I mean, you know, when you're doing things that are longer term decisions, retirement, you know, taking out a mortgage, you know, and then obviously we have volatility sometimes in that industry. So just being able to basically smooth that out during the good years is important as well. So you're not having to, you know, worry about that, you know, while while times are good. Yep. Um, being a planner, you have to have you have to know what the baseline set of circumstances are, and we can deviate from that, obviously, or we can plan around, you know, unforeseen things, but it is good to know sort of what's on the horizon.

SPEAKER_04 21:32

So think about when you look at our airline pilot clients versus a regular employee somewhere. What do you think is the biggest wealth generation difference, wealth generator difference?

SPEAKER_03 21:44

Yeah, so that's that's a good question. Because we have other clients that also have high income that are, you know, W-2 incomes, but the real differentiator is probably the contribution to the to the 401k, is what I would say. Absolutely. And and the ability to then, you know, pick up trips, I think is another side benefit. But really, if you had you know side by side, same exact

Retirement Contributions And Profit Sharing

SPEAKER_03 22:05

W-2 income, it's it's definitely, you know, the ability for that for Delta or whoever, uh, you know, American, Southwest, these big major airlines to, you know, basically max your 401k. Sometimes we see within Q1. Yeah. You know, uh, most even very highly compensated employees usually don't have that.

SPEAKER_04 22:22

No, I would uh you look at a CEO of a corporation, he's banking that extra money either through company stock or he's just putting money from his paycheck, bonuses, incentive pay into brokerage accounts. But the airline pilots at the major airlines today are getting 18% of whatever they make put into their 401k plan, so much so that they top out $70,000 or $71,000, I guess, this year, uh, and what they can put into a 401k plan. And it spills back over uh into their paychecks, or uh some airlines, United American, uh Southwest have these market-based cash balance plans right now that that uh allow that person to continue to save even more for retirement. There, there's there's um uh there's no doubt that uh that would not be there if it wasn't for union negotiation. Now, to be fair, they did lose their pension in order to get those, but this is better than a pension, in my opinion. Yeah, that money's yours.

SPEAKER_03 23:20

Yeah, it's yours and you you can control outside of the market-based cash balance plan, but you can control how it's invested, you know, so you you're not relying on somebody else to take care of that. That's right. So yeah.

SPEAKER_04 23:31

Uh and then profit sharing, uh, Delta and uh United have uh pretty good profit sharing. Delta's probably the best. American just doesn't have the profits. That that's part of the problem. Yeah. Um but and and then I guess long-term benefit protections that that survive downturn. So they're not it's it would take a lot just to start furloughing pilots because things things slow down in the economy. Yeah. The airline would have to be suffering uh at the same time in order to in order to really to really do that.

SPEAKER_03 24:01

And max funding the retirement plans is another way to avoid having all of your eggs in that one airline basket. And you know, that's something we talk about when we're doing planning, just because you think about the main things that can disrupt a airline pilot's plan are things like, you know, being furloughed, losing your medical, you know, something happening with the company, like even what we've seen at Spirit recently. Right. Um, you know, because you do have a lot of eggs in that one basket. So, you know, going back to the point about the pension, you know, having a a retirement account that's separate, that's entirely yours, that isn't banking on the company being entirely successful is, you know, a huge benefit to you.

SPEAKER_04 24:38

Yeah. And the in the the latest um, let's talk about real world proof recent pilot contracts. Sure. We've interviewed um a couple of experts on on this topic, believing that the next downward cycle is underway just because these pilot contracts are so rich is really gonna be really, really hard for airlines to maintain those these pay rates. Yeah. But any pilot's been in the industry for 30 years and starting to exit now has been through a lot of the ups and downs. Yeah. Um you have you have to be ready for that as a pilot, which is why financial planning is so important. Uh to be ready, ready for the the not the not so good days. But these these big these big pay raises were not like they weren't magic. They weren't they weren't unions going, okay, we've had enough of these pay. We're gonna get this pay now.

SPEAKER_03 25:25

And it's outrageous and completely out of line with with reality.

SPEAKER_04 25:29

It it was i I would say 75% of it was a gift to them uh through pilot shortages. Airlines are making good money, uh, and then obviously just their ability to to to bargain, I guess, uh had a lot to do with that. But I I again I don't think the union created that money. They just they just organized the leverage to capitalize on on that.

SPEAKER_03 25:49

Right. And that's something too that I, you know, I've I've researched for this a bit, and it seems to me that these big contracts, and you can correct me if I'm wrong, seems like they're you know, they're not the main reason why a an airline does good or bad financially. It seems like it's the manager side of things more less than pilot pay. Yeah.

SPEAKER_04 26:09

Um I I think it's a good fair statement to say that unions don't make pilots richer. Right. Uh necessarily. But uh you you think about okay, some scenarios. So right now we have a whole thing playing out with uh Spirit, Frontiers under pressure, all the low-cost airlines, because people people are traveling now for the most part want to pay a premium. Yeah.

Contract Surges And Market Forces

SPEAKER_04 26:30

And they want they want the economy comfort or they want first class. Yep. Uh they don't want to participate in any of the fights in the back because humans are uh evidently degrading in how civil they are with each other. Yeah. Uh so they're willing to pay a premium to just get on, get off, and and be near the front, right? Right. Well, in in Spirit's case, uh they they didn't have that business model. It was a low-cost business model that Delta, American United figured out how to beat during COVID. All they had to do was just take a portion of their airplane and give those kind of fares. Right. And people would say, Well, I'll just ride uh ride Delta. And you can buy a basic ticket, you don't get sky miles for. It's very similar to those those Spirit uh airfares, right? So they kind of started beating them at their own game. Well, that's not the responsibility of the union. The unions didn't uh the unions didn't put spirit into distress, right? Right. No, therefore they don't have business model any leverage either. They can't make things better and say, nope, this is what a pilot gets paid.

SPEAKER_03 27:30

Yeah.

SPEAKER_04 27:30

You you're better off if you're searching for an airline or to decide where you want to go, you need to find one that has uh is very strong financially.

SPEAKER_05 27:38

Yeah.

SPEAKER_04 27:38

Because you're you're better off uh long term at that airline. Of course, everybody wins right in that case.

SPEAKER_03 27:44

It seems too like, at least in Spirit's case, you know, obviously they've had the two bankruptcies now, but it seems to me like the union at least protected pilots on the downside of that because I think they negotiated with basically like with the retirement plan, they did have their contribution slashed, I think in half. Yeah. But they're negotiated, I think, for 2028 or 2029, it's like it will return based on how things look now. It'll return to the previous level. So, you know, there's maybe a silver lining there too for the union helping you on the downside as well.

SPEAKER_04 28:16

Where in any other scenario, I think they would just been cut completely to zero. Yeah. Yeah. Yeah. Uh, but at the same time, pilots are leaving left and right. Because they're because they don't think Spirit's gonna make it. Right. So so again, supply-demand's kind of kind of fixing itself, right? Yeah. Unions can't force profits to exist. So that's kind of what we're talking about. If you had a frontier situation, say we want profit sharing just like Delta, you can scream all you want to and and try to bargain for that. But if your company has no profits, yeah, there's no profit sharing. Right. Exactly. So that's up to management to to derive profits. Unions, unions can't really, yeah, can't really handle that. They can have what they call no confidence votes. So we don't have any confidence in this management, this manager doesn't know what they're doing. But it's it it's just more of uh smoke and mirrors. I mean, they can't run out a CEO. Yeah. Uh and honestly, uh pilot pay is a percentage of airline revenue. It's pretty small. Yeah. Yeah, that's what I saw too. As much as you make you you pay these pilots in the end, I think 10% across most airlines.

SPEAKER_03 29:24

Yeah. So that's I mean the lease of the airplane costs more than what you're paying the pilot. Exactly. Exactly.

SPEAKER_04 29:30

Uh so anyway, unions can slow pay cuts, they can improve the transparency, and of course they can trade pay for job security, which is what uh spirit pilots are trying to do right now. But I would say that they're more shock adsorbers, not really shields when it comes to a bad financial situation. Right. Um, so yeah, there are some cost to being uh having a union. So dues, that's real money. They could take two and a half percent of your pay and say, okay, two and a half percent of your pay is gonna go to union dues. Yeah. I would say that they're not represent they're representing the group, they're not representing you individually, right? Unless you're in trouble. If you're in trouble, you can take a union representative to the chief pilot's office. But when they go to negotiate, they're not negotiating for the young guys, they're not negotiating for the old guys, they're just trying to kind of find the middle somewhere. Yeah. So you you could be somewhat disenfranchised in the negotiation process. Yeah. You could be that your pilot groups is mostly young and you're an older older pilot and they do things to favor the young people and not the older people because the majority uh would rule. Right. Right. Yeah. Um, yeah. And in our notes here, we have the occasional misalignment with junior pilots. So which is very, very true. Uh it also, too, you you have conflicts of interest. So how's it that Alpha can represent a regional airline at the same time it can represent the major? Right. So it's good for Endeavor may not be good for Delta mainline. Right. What's good for Delta Mainline may not be good for Endeavor. So how do you walk that line? Yeah. Uh, especially with scope and and work rules and flow through agreements and uh all those things when they're represented by two different factions of the airline pilots association, right? Yeah. Uh so there's, I think there's even lawsuits about that over the years. Uh, I don't think anything really became of it. But uh you are trading individual flexibility for the collective security uh of the group. So questions uh an investor in investors and economists ask. So do unions hurt airlines and eventually pilots? So what is our answer to that, William?

SPEAKER_03 31:44

Well, it's kind of

Business Models, Not Pay, Drive Outcomes

SPEAKER_03 31:45

going back to what we talked about, you know, it seems like, at least from what I've you know researched, that basically it's not the unions that really hurt the airlines, it's the the managerial side of things. Or, you know, pilot pay isn't a significant drag on airlines as a percentage of revenue or or where the money is actually being allocated. Um, you know um, you know, so there's the labor costs and then the management decisions, and those, you know, kind of maybe they're conflated, but um basically pilot labor is just such a small share of you know what it costs to run an airline that it's not really, you know, the big driver of whether an airline is successful, is what I've seen. I don't know what your thoughts are on that.

SPEAKER_04 32:29

I think most airlines, uh their failures come from fuel prices, uh debt. Uh American was kind of on the brink there for a while. Uh and uh bad strategy. So you look at spirit, they probably didn't pivot when the market was changing. Right. They're putting in first class seats now, they call it the big seat. And you know, I don't know if anybody's buying the big seat, yeah, but it's probably uh too late because that's not what people think about. People think about a yellow airplane, low cost, and um sometimes trashy passengers. Yeah. Yeah. But but um and I say that with all respect, but that that's the market that they went after. Right. And they were very successful at it for for quite a while. But it just all that whole business model changed in 2020. Uh, but none of it is because of pilot salaries. No one has gone out of business and said we had to pay our pilots too much, so we had to go out of business.

SPEAKER_03 33:19

Right. If anything, you want pilots to be well compensated because of what you're talking about earlier. Like if you're losing talent to other, you know, other airlines, then that's going to be a problem in the long term for whatever airline that you're talking about.

SPEAKER_04 33:31

True. So do pilot unions make you richer? Coming back to our final uh question. Uh I would say yes if the airline's profitable, uh, strategically aligned, uh, with a good business model, the labor market is tight as it is now, and you value stability and long-term wealth.

SPEAKER_03 33:55

Right. So you're not chasing every you know, last you know, green slip, maybe, or maybe it's you know, or what I guess I should say is you're not negotiating negotiating for yourself as much. You're you're fine with being negotiated as a group and then you know, finding ways to to maximize your benefits there.

SPEAKER_04 34:13

Yeah. Uh retirement. It's all about retirement calculations.

SPEAKER_03 34:16

Yeah.

SPEAKER_04 34:16

Do you want to stay at a regional like Endeavor, or do you want to go to mainline? Uh the retirement is two vastly different lifestyles. Yeah. Very, very different. Yep. Uh so I don't think so. So anyway, that that that's where unions do make you richer. I don't think they make you richer if the airline is structurally weak. Um, you if you prioritize individual negotiation, so you want them representing you specifically, right? That that's you're gonna never be happy as a union person unless you're in the mid majority of demographic, I guess. Right. That union. Um, you're early in your career and very mobile. So if you're just getting started and you're at a regional area uh carrier, I don't know that union really helps you that much. You're just there to build the time and get get your time and get out. Yeah. So so if anything, it'd be there for safety, for something bad happens, for some representation, some job protection uh from from uh situations, I would say. Right. Okay. But when you when you move in to the major, then it becomes more important to your career and and how they represent you. Yeah. Um, so I think pilots don't guarantee riches, but they do dramatically reduce the odds of financial regret. Mm-hmm.

SPEAKER_03 35:31

Yeah. I mean, getting those those larger, you know, I of course, because you miss, you know, miss out on the pension, but getting the negotiating for those larger retirement contributions and then, you know, things like the market-based cash balance plan that's trying to protect you from you know the tax implications of that. You know, those those things do add up.

SPEAKER_04 35:49

Yeah. Yeah. I I would say if you look at the majors, they all for the most part look the same. Uh, I think Delta's still a leader. United's really, really close second. Uh American has a little bit ways to go, but but you still have a very good career there. Yeah. Uh, and then everything after that they all kind of fall off a little bit in in terms of uh wealth and um in in in some cases, uh lifestyle is important. So a pilot might choose to be in Alaska because of the crew of the base and be home. Uh they might choose to be someone now. Why would you stay at an an allegiance air or you know, Spirit and Frontier? I think we're

When Unions Help And When They Don’t

SPEAKER_04 36:30

up and coming airlines, Jet Blue is up and coming airline, and they kind of kind of fizzled out where they are. Yeah. Um, but they do have good, they could do have good compensation, but not as good as the as the mainline carriers. And that and I think that's a testament to those unions and kind of banding together to say, what are you guys doing? This is what we're gonna try to get. Okay, if you get that, then we'll get that too in our in our negotiation. Yeah. Trying to band together for for the collective uh group. But uh, I you know, again, uh you might wonder why what does this have to do with personal financial planning? I I I think that the the lines um uh the lines cross when you're decide trying to decide where you should be for your career, and if you're already there uh understanding like how how this helps you.

SPEAKER_03 37:16

Right. And then how to optimize what you have, whatever the case is. Um, you know, we can help guide you through that.

SPEAKER_04 37:23

Yeah, absolutely. All right. Well, thanks for listening today's episode. If you're sitting here learning more about wiser wealth management or want to schedule a consultation to meet with one of our fiduciary financial advisors, like William, you can do so by going to wiserinvestor.com. Uh, you can also click a uh the link in the episode notes. See you guys again next week.

SPEAKER_00 37:41

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