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QuestionerIn the annual report, you say Executive Jet is growing fast and doing great. Executive Jet seems to be able to pass along its rising labor costs to its customers. Why does Executive Jet do well while the airlines experience troubles?
WarrenWell, the big problem with the airlines is not so much what their aggregate payments will be. The real problem is when you're in the airline business and your wage rates are out of line with your competitors. When you get right down to it, the figure to look at with an airline, among a lot of other things, but you start with the cost for available seat mile, and then you work that through based on the capacity utilization to get to the revenue per occupied seat mile. And you could have labor costs or any other cost. fuel costs up dramatically for the airlines from a couple of years ago. As long as you're more efficient than your competitor and your costs are not higher than your competitor, people will continue to fly. It's when you get your costs out of line with your competitor, which was the situation that or Charlie and I were directors of U.S. Air a few years back, and our cost per seat mile were far higher than competitors, and that was fine where we didn't have competitors on and many of the short routes in the east, but as the Southwest airlines would move into our territory, and they had costs, we'll say, and it is from memory, but they might have had costs of below eight cents a seat mile, and our cost might have been 12 cents a seat mile. You know, that is, you're going to get killed eventually. They may not get to this route this year, but they'll get there next year or the year after. So if you're running a big airline at Delta or United or whatever, if your costs are on paramed, or less labor costs than your other major competitors, that is much more important to you than the absolute level. And the NetJets service is not really designed to be competitive with the United Airlines or an American or something of that sort. It has a different group of competitors. And I think we we have a absolutely terrific pilot force there, and we want them to be happy, but there's a lot of other ways. I mean, you want to pay them fairly, but with our pilots, for example, it's extremely important to them, in many cases, to be able to live where they want to, and to work the kind of shifts that we can offer. So we attract them in many other ways than bidding against United Airlines or American Airlines. Big thing, and you just, you can't take labor costs that are materially higher than your competitor, in a business that has commodity-like characteristics such as airline seats, you just can't do it over time. And you can get away with it for a while. But sooner or later, the nature of a capitalist society is that the guy with the lower costs comes in and kills you.