It is simply time to end the war of words between airline labor and airline management. It’s time to respect the realities of a fragile global economy. It’s time to appreciate that increasing fixed costs can’t be part of collective bargaining agreements. It is time to realize that new competition does not include the iconic names of the past. It’s time for airline pilot labor to stop blaming everyone but themselves for the slow pace of negotiations. These sentiments apply in Chicago, Fort Worth and Phoenix.
Two of the Big 3 U.S. automakers filed for bankruptcy protection. A significant amount of the cost relief won by management came from labor, much like what U.S. airlines won from labor at United, US Airways, Delta and Northwest several years ago. The automakers are negotiating – successfully, mind you – their first agreements since gaining labor concessions. In my mind, there are few differences between these legacy industries except for the agreements being negotiated in Detroit reflect the realities of today’s marketplace while airline contracts still contain outdated provisions ladened with duct tape and chicken wire.
In an odd twist, the auto industry and the UAW embraced the concept of global competition long before globe-trekking pilots recognized changing domestic competition and acknowledged the economic realities of a new century. U.S. airline pilot unions seem to forget, as the Harvard Business Review wrote: “that there will be no going home again… that the landscape of business has been forever altered.”
U.S. airline pilot unions blame everyone but themselves for the growth of today’s regional industry. After all, it is the mainline pilot unions that negotiated the “productivity improvement” of shifting small aircraft flying to the regional sector. The war of (useless) words has to end, and it’s also time to stop the blame game over scope and just who is going to do the flying of aircraft 77 seats and larger. Today's regional carriers are. To accomplish that, U.S. pilot unions need to negotiate rates and work rules less than those in the current collective bargaining agreements in order to bring more flying in-house. That means, yes, a two-tier wage scale… like the UAW just negotiated.
The UAW agreed to continue the two-tiered system negotiated in bankruptcy in return for adding or keeping 6,400 jobs in the U.S. A central point in the agreement was leveraging the two-tier system to win buyouts for higher paid workers – up to $65,000. I think that would work in the airline industry as well, a prudent use of cash by airlines to get higher paid workers off the payrolls. Instead of pay increases, most GM workers will get $12,500 in profit sharing (more because of an improved profit sharing formula), bonuses and other payments over the four year contract. Those at entry-level wages - roughly half the current work force - will receive hourly rate increases of 24 percent.
Just like the regional industry cross-subsidizes mainline pilot wage and benefit packages today, the new two-tier system would do much the same, but also put an end to what pilots’ term “outsourcing.” I am not saying the numbers above are the right amounts for pilots; I am suggesting the concept of a two-tier wage/benefit/work rule package for airplanes dedicated to flying in the revenue-poor domestic system need a downward adjustment and need to include at risk earnings. Fixed rates of pay, particularly in the domestic system, should only be negotiated in return for hard and fast productivity improvements.
As a bonus, the credit rating of General Motors was upgraded by Standard & Poor’s allowing the company to borrow at cheaper rates which also works to maximize profit sharing payments.
I’m writing this after listening to speech by Capt. Wendy Morse at United in which she spoke openly about the dysfunction in her own ranks standing in the way an agreement. Morse does suggest the company is also dragging its feet, but it certainly makes one question the internal union politics at United/Continental. The same rhetoric has been heard at American and US Airways.
What absolutely befuddles me about the FUPM mentality by the boisterous minority at each of the pilot unions is the failure to recognize the past financial performance of this industry certainly doesn’t guarantee job security. There is no more room for court-assisted restructuring. What is absolutely amazing is the U.S. airline industry might just make a penny on the dollar of revenue in 2011 despite jet fuel prices that are higher than they were in 2008 when the industry lost 17 cents on a dollar. A penny of profit is just north of $1 billion for the entire industry. Some will do better, some will do worse, but either way, there is not a lot to go around.
There have been times in the history of the U.S. airline industry where union pilot leadership has, well led. This is an opportunity for those heading the pilot unions at United, American and US Airways (and, to an extent, Continental) to do so again. Leadership is needed to understand domestic flying economics do not support collective bargaining terms for aircraft sized between 100 and 140 seats. Someone needs to step-up, otherwise the industry squanders yet another opportunity to remove emotion from the bargaining table and untangle the morass called scope.
Just like the UAW is negotiating terms and conditions not previously considered in order to maintain and create jobs in the U.S., mainline pilot leaders must figure out how to return flying to its members. The U.S. airline industry is going to see its fortunes turn. It just won’t be today or even 2012 based on current economic trends. Therein lays the opportunity. Like the auto industry, airline pilots and other workers should share in increased profits. It’s an upside protection that pays off for members and they “get theirs” when the headwinds change. It’s also a catalyst to get something done now and provide cost-certainty to companies desperately trying to staunch the red ink.
If pilot group “asks” continue to follow the same old, tired, predictable pattern of fixed-wage increases and blind allegiance to obsolete scope clauses, more than likely, one carrier will face liquidation and tens of thousands of jobs will be lost.
I think of these negotiations as “transition” agreements. They must be evolutionary because past “gives” cannot be repaid. The industry, the economy, has dramatically changed and we can’t go back. To be evolutionary requires leadership willing to be revolutionary in their thinking. It might be cliché to say the world is getting smaller, but it’s a truism for the networks that comprise domestic U.S. airline systems today. Larger markets will always have airline service; it’s the small and mid-tier markets airlines struggle to serve profitably. As the network continues evolving, the underlying economics of the domestic system simply do not work if flown at today’s outdated and trumped up wage and benefit packages at the mainline.
No more whipsawing. No more arbitrage. Just reality. Pilot leadership and airline management must get it right this time and create a template other work groups mired in their own false hopes that historical patterns will reemerge can follow.
Pilots are a sophisticated group in their education, reasoning and their ability to react in times of trouble. The UAW probably isn’t as sophisticated, but currently, they’re smarter than pilots.
This is a case where the ends really do justify the means.