Airline managements have won a string of major labour concessions in the wake of the industry crisis, but there are already signs that labour will want them back as soon as growth returns. Is it time to move beyond the boom and bust?
A world-weary pilot with Eastern Airlines, in the last days before that venerable carrier finally disappeared, leant over in the cockpit on one of his last journeys back across the Midwest to make an interesting analogy. The airline business, he commented, was like farming, with its slow winter seasons and plentiful harvests, all at the mercy of the prevailing forces of nature.
More than a decade later that pilot has long since retired and his airline failed, but the cycle remains the same. And just as farms are wont to lay off their hired help during the lean times and hire them back when the sun shines, so too with the airline industry. As the cycle comes around again, it is reasonable to ask whether this deal works either for employees or their employers.
In reality, the current round of wage cuts and layoffs are about two separate needs. First is an immediate need to trim back labour costs in order to match the falling revenues of the downturn. Second is a need for a fundamental, structural downshift in the airline cost base, which will survive even when the industry picks up. In short, carriers need to be both more flexible and downright cheaper. It is not clear whether the traditional sticks and carrots actually deliver either with any great efficiency.
For certain, there have been some heavy rounds of layoffs, wage freezes and furloughing over the past 18 months. Such cuts have been a matter of survival and labour unions have, for the main part, accepted that, often under the shadow of bankruptcy. However, labour has been equally adamant that the cuts will have to be made good when the good times return.
In the words of Duane Woerth, president of the US Air Line Pilots Association, the huge concessions made at United Airlines and US Airways show what members can do "when required". The implication is that this is only a temporary sacrifice.
Today it is a management market, but when profits return labour will be back in the driving seat, in the words of Georg Fongern at Vereinigung Cockpit, the German pilots union. He adds that the ideal is to avoid such extremes to "calm the whole process". Management too has been hinting at new approaches to end the old conflicts. In the last recession it was the Employee Share Ownership Plan (ESOP)which became the great experiment, at least for the US majors. United was its poster child, giving half the company to employees in the largest such scheme ever. But while employees may have gained power, the ESOP singularly failed to deliver a greater sense of partnership, or indeed any greater concessions in future contract battles.
The lesson, perhaps, is that change needs to be cultural and not merely contractual. The cultural heritage of the US majors often looks more as though it were forged within the big car production lines of Detroit rather than in the modern service sector. Flag carriers elsewhere have grown up as the flying arm of their national civil service. Neither example is exactly a promising template for a flexible and dynamic workforce.
Partnership is not an easy thing to define, but it certainly includes more openness, participative decision-making and trust on both sides. In the words of Lufthansa's new chairman Wolfgang Mayrhuber: "When you have the flexibility you don't need to hire and fire. You have the team on board." Indeed, Lufthansa has some of that flexibility with up to 20%of pilots income linked to profits.
The newer low-cost competitors have had a chance to do better in avoiding the old conflicts and rigidities. Their time for conflict may yet come as workforces age and growth slows, but their culture is undoubtedly more modern. Despite lower pay scales, there is a line of applicants waiting to join JetBlue. In the words of one captain, previously a veteran with the majors, JetBlue was the first time he ever got to join a conference call with the chief executive. Something that the Eastern pilot would surely never have imagined possible.
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