The sources of labour discontent July 1999

The last few years have been a relatively affluent period for airlines in North America and Europe. But they have also been characterised by union militancy with disruptive and expensive strikes at Northwest, American, British Airways and Air Canada in addition to the airlines where labour unrest is expected, such as Iberia, Alitalia and Air France. It would seem that many airline unions — particularly pilots unions, whose members are well–educated and internationally–minded — simply do not feel they have a communion of interest with airline managements.

On the other side, airline managers frequently appear oblivious to the causes of this disaffection, and hence are heavy–handed in face–to–face negotiations. There is plenty of evidence to suggest that in recent management/labour disputes, negotiations have been allowed to break down too quickly and that airlines have lost more in strike or sickout costs than the original cost saving that they were hoping to extract from labour.

Why is labour conflict so endemic in this industry?

Part of the reason lies in the cyclicality of the airline industry. For successful airlines the best time to start cutting costs is before the peak of the cycle has been reached, in preparation for more difficult times (and before labour supply/demand trends strengthen the union position). This is what British Airways’ management attempted to do two years ago, but their actions instead provoked a strike and caused widespread disgruntlement in the process.

From the unions’ perspective, this timing could not be less “fair”. Their members are being asked for sacrifices when profits are booming and investors are receiving good returns. From the investors’ perspective, if management fails to address labour cost issues then they bear all the pain in a downturn whereas employees, initially at least, will be unaffected.

Explaining the importance of enhancing shareholder value is a very difficult message to get across to employees — even when they themselves own stock — but many airline managers don’t even bother to make the effort.

The complexity of union contracts is another source of friction and conflict. Negotiations are rarely just about pay; they also involve complicated work rules and conditions. If unions feel that they have lost out on the pay side of negotiations — which managements tend to emphasise because it’s those numbers that end up in the headlines — there will be the potential for a series of disputes over the implementation of work rules, which can be hideously detailed and, unless meticulously drafted, open to various interpretations.

Unions also tend to suspect — often with justification — that management will be employing all its ingenuity to find ways around the agreement. This appears to be at the core of American Airlines’ pilots dispute over the purchase of Reno Air and its possible development as a low–cost subsidiary.

Corporate limbo

Pilots and flight attendants live in a sort of corporate limbo. They are, of course, employees but their only regular contacts with the airline management are when they log on and off from flying duty. They are not really involved in the day–to–day business of the airline.

This curious alienation has an important effect on the collective mindset. Information among pilots and flight attendants has traditionally been disseminated via the unions. And now the Internet has accelerated this flow of information and allowed almost instantaneous exchange of opinion among geographically–dispersed groups through websites and bulletin boards.

Some observers think that the Internet has added to the volatility of union actions. For example, just before the infamous American sickout earlier this year there was frenetic activity on APA’s website.

However, dominating everything from an airline union’s perspective is the principle of seniority, a system which is unique to the aviation business. Seniority directly affects two paramount issues — pay and work schedule — and frequently means that the interests of the employees are directly opposed to company strategies such as alliances, rationalisation and outsourcing.

Explaining seniority

The following explanation of seniority comes from The Newfoundland Group, which, despite its name, is a consultancy based in Dallas. It consists of current Southwest pilots who specialise in mediating between investor and union interests in airlines.

In aviation, all employee groups, except headquarters personnel, are based entirely on seniority lists. When a new person is hired he or she is placed at the bottom of the list. As the company grows, he or she moves up the list as new people are hired. But merit and job performance have absolutely no effect on the employee’s position in the seniority ladder, even over a career of 30 years — the only way there is movement is if someone retires above or people are added below.

Everything is decided from the seniority list, and pay is based on years of experience. The person at the top of the list also chooses his or her work schedule first, the number two person chooses next and so on. Employees working 6am–3pm shifts on Monday through Friday face lighter loads and primarily business people. More junior employees, working 3pm–12 midnight Friday through Tuesday, have to deal with the leisure travellers, who are much more difficult. Most aviation schedules are based on lots of overtime, which is distributed by seniority, and all vacations are also divvied out by the same methodology.

Within the pilot ranks, seniority magnifies pay issues because Captains are often paid 50% more than experienced First Officers and up to seven times more than the newest pilot joining the company. Pilots move from the right seat (First Officers) to the left seat (Captains) based entirely on internal growth.

So the life of the aviation worker is affected more by internal growth than profits (although consistent unprofitability will eventually affect workers in a really big way). This is one of the reasons labour consistently reacts so negatively to alliances, mergers and buy–outs. They want internal growth, not a stronger, larger network.

When a company is contracting, seniority can be most harmful to the highest wage earners — pilots. Pilots are highly trained at accomplishing one task — flying an aircraft. A pilot is poorly trained to transfer those skills to any other profession. When a pilot lands another flying job, he or she starts at the bottom — seniority cuts both ways.

Downsizing is inevitably bad for the employee, and downsizing without a transferable job skill is worse. Downsizing at an older age, without a transferable job skill, is the toughest. Pilots feel they are potential candidates for the second and third categories.

Solutions?

This review has attempted to explain why there is so much potential for labour conflict in the airline industry. Unfortunately, it is evident that there are no simple solutions. Employee share ownership schemes help to converge the perceived interests of unions, management and investors, but they certainly do not guarantee labour harmony.

The management qualities needed to avoid damaging labour disputes are very difficult to categorise objectively, but they do include consistency and openness — and these attributes have to be embodied in the CEO and/or chairman of the airline.