Category: Business

Northwest’s Pilot Scope Clause Contract Negotiations

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Sort of an abstract issue, but relevant for Madison, particularly with the growth of 50 to 100 seat aircraft in and out of Madison

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Interesting look at labor issues for Madison’s #1 air carrier:

Northwest’s scope clause is, in fact, particularly onerous relative to scope clauses at other major airlines. United, Delta, American & US Airways can outsource (to regional airlines) aircraft up to at least 70 seats (US Airways can even outsource some aircraft of 86 seats). Continental’s limit is 59 seats, but can do a virtually unlimited number of those.

The issue at Northwest is particularly acute because Northwest flies smaller mainline aircraft than any other major airline. Northwest itself flies over 100 DC-9s (photo above). These geriatric aircraft (many of them over 30 years old or more) have just over 100 seats. Click here for further DC-9 data.

Bogle’s “The Battle for the Soul of Capitalism”

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Vanguard Founder and former CEO John Bogle has written a timely and useful book: The Battle for the Soul of Capitalism. Daniel Berninger posts a nice summary:

“The Battle for the Soul of Capitalism” argues most of the forces that produced the scandals among Enron, Worldcom, et al remain in place.

This means investors should expect another wave of scandals even as the bad
actors of the first wave go to trial.

The people running investment funds and corporations increasingly put their
short term interests ahead of the long term interests of the investing
public. The status quo has corporate CEO’s reaping a disproportionate share
of returns by finding ways to align the interests of the intermediaries with
their own. The link between executive compensation and stock options
produces more activities that boost short term stock price even as they
jeopardize long term prospects. Bogle makes the point “the more the managers
take, the less investors make.” By his calculations, investing owners take
100% of the risk while CEO’s, intermediary investment bankers, and portfolio
managers get 70% of the compounded return. The currently passive nature of
stock ownership follows the decline of direct ownership of stocks from 92%
in 1950 to 32% today. Portfolio managers do not hold corporate CEO’s
accountable because the average stock stays in a portfolio for less than a
year versus 15 years when Bogle got into the business in the 1960’s.

Well worth reading.

Southwest CEO Gary Kelly on Competition

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Susan Warren:

But the 35-year-old airline is feeling its age, with labor costs rising along with expenses related to maintaining a fleet of more than 400 planes. As its fuel-hedging benefits begin to erode, Mr. Kelly must continue to tighten spending while maintaining the famous warm-and-fuzzy Southwest culture that has generated some of the most loyal employees in the industry. His ability to do that will be severely tested next year when Southwest must negotiate a new labor contract with its pilots union. The airline’s financial strength and its long, unbroken string of quarterly profits could make it harder to keep a lid on salaries and benefits.

The State of IT Outsourcing to India

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The Economist:

The biggest problem seems to be that the talent pool of skilled workers will not able to keep up. Currently there are about 700,000 people working in IT and outsourcing, which is likely to grow up to 2.3 million by 2010, but only 1.05 million new graduates will qualify from local colleges in the next 5 years leading to a shortfall of 500,000 workers! All this despite the fact that almost 2.5 million students graduate in India each year.” From the article: “In IT the growth in Indian exports is expected to come both from the software market, and from ‘traditional IT outsourcing’–such as the remote management of whole systems, a market now dominated by the big global IT consultancies. This is expected to rise from 8% of Indian sales now to about 30% in 2010, while software-development’s share will fall from 55% to 39%. In business-process-offshoring, the big industries will remain banking and insurance. But rapid expansion is also expected in other areas, like legal services.”

Slashdot. discussion.

What employees think about consumer-directed health plans

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Vishal Agrawal, Paul D. Mango, and Kimberly O. Packard:

Eager to curb the rising cost of health care, many US insurers and employers are considering consumer-directed health plans (CDHPs), which are designed to lower costs by giving consumers more responsibility for managing their own health care spending.1 Indeed, a survey indicates that this interest is more than justified. We found that the plans encourage value-conscious behavior, increase the consumers’ level of engagement with their well-being, and may even promote behavior that leads to better long-term health.

In March 2005 we surveyed 2,500 consumers, 1,000 of whom had been enrolled in a CDHP for at least one year.2 We also conducted extensive interviews with 25 of these CDHP consumers and with seven benefits managers who administer the plans.3 Our goal was to learn how consumers’ behavior changes when they become responsible for a greater share of their health care costs.

VC’s Survey Opportunities

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Julie Hanna:

What about future trends, asked Sahlman. Many venture capitalists made money in enterprise software, until the space was saturated. Will venture capitalists have an impact in fields relating to healthcare, education, and the environment—all areas that show a great demand for new solutions?

“Clean energy is big on the West Coast,” said Reiss. “Venture capitalists haven’t traditionally invested in those areas that you mentioned . . . but given the amount of money that’s in the business, somebody is going to try, and somebody will be right.”

Signs of A Bubble?

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Tristan Louis:

As we near the end of the year, I realized that it’s been about half a decade since the bubble burst on the dotcom world. At the same time, it seems that a number of similar bubble signs may be showing up again. Based on my personal experience, I’d like to present what I consider the top five signs of a bubble being in place. Some may overlap but I’ve tried to define some generic rules that can be applied to all bubbles, not just the ones in technology