Labouring in Europe

TOM GILL LONDON

Industrial relations appear to have improved and European workers are becoming more efficient. But will the changes be far-reaching enough to enable airlines to cope with cyclical downturn?

The British Airline Pilots Association(BALPA) describes itself as "serene". The UK white-collar union MSF says it is unhappy but able to accommodate the hundreds of recently announced job cuts at British Airways. The attitude of the unions appears to have changed dramatically since the European airline industry started cutting costs in the face of the economic crises of the early 1990s.

With labour the single biggest cost for airlines, an understanding union is crucial if airline efforts to adjust to cyclical downturn are not to end up in damaging industrial conflicts.

Labour costs have been reduced and efficiency raised since the early 1990s, although much remains to be done. At British Airways, for example, labour costs have fallen from around 30% of total operating costs to around 25%, while at Austrian Airlines they have fallen from 27% to 22%. Yet data from the Association of European Airlines suggest that the proportion spent on cockpit crews has remained steady for a number of years -Êat around 7% of the total passenger service costs. Labour productivity has risen by some 20-30% over the last five years at Lufthansa and British Airways but overall the improvement is less marked among flying personnel.

No pilot counterparts

"It is very difficult to do anything about these groups," says Peter Turnbull, Professor of Human Resources Management and Labour Relations at the UK's Cardiff Business School, and co-author of a recent survey on aviation unions. Apart from their industrial muscle, "pilots only ever compare themselves to other pilots, as do cabin crew. Unlike maintenance and inflight catering - engineers and caterers exist in many other industries - pilots and cabin crew have no counterparts".

Turnbull's assertion that it is difficult for an "all-out assault" on flying staff in Europe is highlighted by the recent pilot labour deals.

British Airways' drive to cut costs was typified by the bitter cabin crew strike of 1997 - after which BA imposed a cost-saving two-tier pay system. Yet the company came to a pilot agreement in June which increased the pay and benefits of the EuroGatwick and BAR regional pilots to mainline rates. This, together with commitments that "BA pilots will fly BA aircraft" calmed fears that low-cost carrier AML was being used to drive down wages and conditions. BA was using its links to AML to serve holiday routes such as those in the Caribbean. The deal did, however, include a selective lengthening of hours and reduction in crew size, and the creation of a single pool of pilots at its Gatwick and Heathrow hubs.

KLM, Swissair and Lufthansa also have medium-length labour contracts under their belts which, although they include productivity deals, fail to make any serious dent in pilot costs.

Iberia's long-running pilot dispute, ostensibly about a long overdue revamp of the route network and corporate structure and the exploitation of cockpit commonality, only appeared to be finally resolved in September, almost a year after the initial agreement was signed. The dispute, which involved a 10-day strike in March costing in excess of Pts4 billion ($25 million), added to the woes created by severe air traffic control problems. Iberia won the day on the vital points, although it was forcedto agree to a modification of its original fleet plans which limited efficiency.

Air France is the only major European carrier which appears to have succeeded in making a substantial saving on pilot costs, and with good reason. It may have had some of Europe's most productive pilots but it also had the most expensive. The goal to reduce pilot costs to the benchmark level of KLM, BA and Lufthansa cost the carrier a month-long strike and Fr1.3 billion ($20 million) in lost operating profit.

In the end the management got what it wanted, although the introduction of a two-tier pay scale was abandoned. The resulting "global" labour contract, based on the US model, was also a major advance. "Permanent negotiations were the source of many disputes," says Hughes Gendre, President of the SNPL pilots' union.

New unionism?

The apparent appeasement of the Air France pilots and the non-strike stance taken by pilots at northern Europe's privatised carriers has nurtured hopes that the era of industrial conflict in Europe is ending, along with state ownership. The now widespread share-owning and profit-sharing schemes may also help.

Following the Air France shares-for-pay-freeze deal, Gendre is convinced that shareholder culture will "change the mentality profoundly. People understand that the company must make a profit".

According to Francesco D'Arrigo, vice president for international and government affairs at the Italian pilot's union ANPAC, "industrial relations have improved dramatically since 1995 - we've had just one day of strikes". Alitalia pilots, who sacrificed pay and benefits to save their ailing company, are now more concerned about share price than a showdown with management.

However, they are angry about the long delay in the sale of the Italian flag carrier, says D'Arrigo, attributing it more to politics than economics. It appears that share-owning European pilots do not like uncertainty over privatisation or political interference any more than private or institutional investors. Yet the spread of shareholder culture among aviation workers is still some way off, with bread-and-butter issues of pay, working conditions and job security still the priority.

"Many pilots have not understood the potential of the ESOP [Employee Stock Ownership Plan]," says one Alitalia pilot. "The price of [Alitalia's] shares has gone so high they want to cash them in. They don't care about controlling the company, they just think about buying a second house."

A lack of interest and rivalry between unions and employees has sabotaged attempts at syndicating employee shares. But this may be no bad thing. By claiming their 20% stake, Alitalia employees would obtain three of the eight seats on the airline's board. Aviation unions may never be capable of wielding shareholder power, but their ranks, at least among flying staff, are swelling.

Growing membership

Membership among pilot unions has been growing rapidly, particularly in the dynamic regional and low-cost sector. The European Cockpit Association now has around 24,000 affiliated members, up from 20,000 just two years ago.

Balpa has over 90%membership at BA and Europe's largest pilot union is growing in double figures, says assistant general secretary, Mike Sparham.

In the UK, where employers benefit from lower labour costs and weaker labour rights, a union recognition law could result in a growth of collective bargaining. Balpa believes it will quickly be able to translate its membership into negotiating power. The UK's AEEU union, which represents all employees except pilots at BA's low-cost subsidiary GO, believes it will also benefit. Trade union officials point to the unionised US low-cost carrier Southwest Airlines, but the mere mention of unions is greeted with a frosty response at the UK's low-cost airlines. Luton-based carrier Debonair, for example, does not have any unions and, according to one senior executive, this situation will experience "no change in the short term."

Debonair is one of many which no doubt looks warily at the lack of an equivalent sector in continental Europe and concludes that better workers' rights and institutionalised collective bargaining are not for them.

While Brussels-based Virgin Express is still licking its wounds from a showdown with labour, a number of cabin and pilot strikes have occurred across Europe involving Meridiana of Italy, and AOM and Air Liberté of France. Things are "going badly" at Air Liberté, says Gendre, adding that there are no talks with management over improved working conditions.

Meanwhile, echoing French union complaints about Air Liberté, German pilot and cabin crew unions denounce BA's German subsidiary, Deutsche BA, for rejecting the continental European traditions of "social dialogue and collective agreements". It appears that European labour relations still need some improvement.

European labour productivity and costs1998
Airline	RPK/pilot ('000)	RPK/cabin attendant ('000)	RPK/employee ('000)	Labour cost/turnover %
British Airways	34,741	7,848	2,081	26
Alitalia	34,559	12,158	2.294	24
KLM	34,278	10,502	2,098	26
Sabena	26,130	9,055	1,279	26
Swissair	25,682	8,314	1,639	26
Iberia	25,607	9,741	1,356	30
Euro 11	25,518	8,191	1,741	Na
Air France	24,883	7,869	1,520	30
TAP Air Portugal	21,607	6,683	1,101	Na
Lufthansa	20,383	7,035	2,203	26
World	20,121	9,121	1,600	Na
Finnair	18,037	6,302	1,190	Na
SAS	11,090	6,498	1,008	30

Source: IATA, Salomon Smith Barney, company reports RPK=Revenue Passenger Kilometre; RTK=Revenue Tonne Kilometre Note: Labour costs are for 1997 except Iberia, which is 1998

European pilot union contracts
Country	Airline	Union	Contract period	Details
UK	British Airways	BALPA	Until end 2001	Salaries increase to mainline rates for EuroGatwick and BAR pilots. Higher productivity plus pay increase of 3.5%
Germany	Lufthansa	VC	Mar 1999-Apr 2000	3.5% pay increase plus harmonisation of captain basic monthly salary to DM14,444 ($7,700)
France	Air France	SNPL	Mar 1999-Apr 2002	Global agreement including salary freeze in exchange for shares worth 7% of company capital; limits on outsourced flying; disputes procedure.
Netherlands	KLM	VNV	Jun 1998-Aug 2000	Pay increases of 3% in July 1998, 2.5% in July 1999 and 1% in April 2000.Plus bonus of 5% October 1998, 2% Oct 99 and Jul 2000.
Switzerland	Swissair	Aeropers	Jul 1999-Dec 2003	Bonuses for productivity improvements, including mixed-fleet flying for long haul (A330) and short haul (A320 family).
Italy	Alitalia	ANPAC	Jan 1998-Jan 2000	Inflation level pay rise plus benefits linked to license and medical insurance costs upon retirement.
Spain	Iberia	SEPLA	Oct 1998-2004	Pilots agree to merging of Aviaco into mainline fleet; sale of regional subsidiaries, a degree of cross crewing + obtain Pts5 million in share options plus a one-off Pts700,000 bonus following initial public offering.
Portugal	TAP Air Portugal	SPAC	N/A	Pay rises of 3% 1998 and 3% 1999. Hours reduced from 50 to 48 weekly, but more variation in daily hours. Pilots to gain 10-20% of TAP capital.

Source: Airline Business