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Overcoming Airsickness

There's not a whole lot of bravado in the airlines these days.

With a surplus of planes cleared off the runway, pilots, flight attendants, and mechanics have realized that job security and past paychecks are as likely to continue as an on-time afternoon landing at Newark or LaGuardia. And with higher fuel prices and the rumblings of war threatening to keep jetsetters closer to home, things can always get worse.

Concessions have been made to roll back salaries. They continue. Last night, United Airline's (NYSE: UAL) flight attendants union proposed a new contract that would save the troubled carrier $1 billion over the next six years. Earlier this month, AMR's (NYSE: AMR) American Airlines proposed $1.8 billion in cuts. The alternative? Bankruptcy, possibly.

A couple of years ago, airline employees were flying high. It was "coffee, tea, and prosperity," as salaries took off. As soon as United's pilots secured the industry's highest wages, Delta's (NYSE: DAL) ranks fired back with pay hikes that would cost the airline at least $2 billion more over the next four years. That was early in 2001, and we all know what happened a few months later.

Since 9/11, airlines have shaved their schedules by 20%, but it's not just a fear of flying. The weak economy has hit high-margin business travel hard. Regional players such as Southwest (NYSE: LUV) and JetBlue (Nasdaq: JBLU), which have been brought up on lean overhead compartments, have expanded to new airports, forcing the major carriers to match their low fares.

The problem is the major carriers weren't doing so hot, even as they yielded major concessions to employee unions. This has been like a vat of vinegar into an open wound. However, it's also been a cruel yet effective eye-opener.

If the industry's deficit-riddled financials find you reaching for the airsickness bag, you're not alone. However, low morale hasn't stopped the major carriers from planning or expanding leaner subsidiaries to take on the more successful Southwest and JetBlue models.

Unions may not like what this shift represents, in terms of salaries and staffing requirements, but it's clearly better than being parked off the tarmac.

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