Directors Update 03-29-04
Workers, passengers stretch airlines too thin
By Marilyn Adams and Dan Reed, USA TODAY
Across the street from United Airlines' bright, glass headquarters near Chicago stands a symbol of an ugly war.
"Retiree health care matters," blares an orange-lettered billboard sponsored by United's flight attendants union. Angry union leaders say the airline tricked 2,100 workers into retiring early with promises of affordable health insurance — then used the bankruptcy process to increase the cost.
United management says it didn't commit fraud, and a court-appointed expert has agreed. Convinced it was misled, the Association of Flight Attendants (AFA) is expanding its campaign of attack ads in United's hometown of Chicago, as well as in Denver and San Francisco, where the No. 2 airline operates huge hubs.
The clash is just one battle in the most pervasive, bitter labor-management struggle since the post-deregulation days of the early 1980s.
Airlines are in a vise. On one side, unions are fighting to hold on to what's left of good wage-and-benefit packages won in previous negotiations. On the other side, budget-conscious travelers are insisting on — and getting — rock-bottom airfares.
As retired American Airlines CEO Robert Crandall puts it, consumers and workers are fighting over the same dollars, and consumers are winning.
"Labor can either work for rates that allow for very low pricing, or they won't be working for very long," Crandall says.
Numbers from Back Aviation Solutions show the underlying economics: Industrywide, labor costs rose 12% for each seat flown one mile in the three years that ended with the July-September quarter of 2003. Over the same period, revenue per seat-mile declined 10%.
Amid the turmoil, says AFA International President Patricia Friend, union officials and frontline workers are more demoralized than at any other time she can remember.
"Sometimes I don't know how people get up and put on their uniforms in the morning," she says.
Most big airlines are reeling from three years of losses, a steep falloff in travel and competition from expanding discounters. United Airlines is in bankruptcy court. US Airways just emerged. Delta Air Lines can't rule out a filing and American narrowly avoided one last year.
Relentless downward pressure on airfares is hitting workers hard. Airline unions, which have lost tens of thousands of members to layoffs, are fighting management efforts to chop pay, outsource work or cut retirement benefits.
Labor representatives say today's executives don't know how to turn around an airline in such a brutal environment. They complain that too many executives are helping themselves to perks even as they're demanding sacrifices from workers.
Divisions at some carriers are "irreparable," says professor Richard Gritta of the University of Portland, in Oregon. Management, he says, has "spent every dime of goodwill."
"I'm not pro-union. But looking at the way airline employees have been treated, I can understand how they feel," Gritta says.
Jeff Brundage, senior vice president of human resources at No. 1 American, says criticism of management fails to recognize permanent changes in the industry. At the big airlines, he says, costs must come down and stay down because of rising competition from low-cost carriers and consumers' insistence on lower prices.
"This is not just another downturn in our business cycle. ... We have to make adjustments in all our costs — labor and otherwise — and make them permanently," Brundage says.
Irreconcilable differences
Employee anger is spilling into public displays. In recent weeks, flight attendants at United and aircraft mechanics at US Airways have picketed the biggest airports their airlines serve.
The International Association of Machinists (IAM), which represents US Airways mechanics, is angry that US Airways wants to outsource some maintenance work. The union says it won't discuss more concessions.
Workers at US Airways, which emerged from bankruptcy protection a year ago but is still losing money, gave up $1 billion a year in two rounds of concessions. The airline terminated its pilots' pension plan in bankruptcy court.
Five of the "Big Six" traditional airlines — American, United, Delta, Northwest and US Airways — are seeking labor concessions, have already negotiated some or are seeking more. The sixth, Continental, is renegotiating contracts this year with all four of its unions. It has lost its advantage of having the lowest labor costs of the group.
US Airways is threatening to sell big assets, such as major airport gates — which would mean more layoffs — if its unions don't reopen their contracts a third time.
Even profitable low-fare airlines aren't immune to employee resentment. Southwest Airlines, whose stock symbol is LUV, has prided itself for 30 years on friendly employee relations. But on Valentine's Day, its flight attendants union picketed airports nationwide, demanding better pay.
Duane Woerth, national president of the Air Line Pilots Association (ALPA), says the turmoil is "across the board," more widespread than he's seen in decades.
The IAM's international president agrees.
"The state of airline labor relations," says Tom Buffenbarger, "leaves a lot to be desired."
Things were different four years ago, when airline profit was soaring. Unions that had sacrificed during the Persian Gulf War and recession of the early 1990s demanded and got richer contracts so workers could share the bounty.
Amid contract talks in summer 2000, for example, United pilots who had sacrificed in the early 1990s quit working overtime, resulting in thousands of flight delays that drove away many passengers.
In a now-infamous remark, Rick Dubinsky, then chairman of the pilots union, said his pilots "don't want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg."
United pilots got what they wanted. Senior international captains ended up with nearly $300,000 a year.
It was a similar story throughout the industry. According to airline consultant Dave Swierenga, a former economist for the Air Transport Association, the average airline job, including management, paid $63,000 a year with benefits in 1999. By 2003, it had hit $76,000 as wage rates negotiated at the end of the boom kicked in.
Swierenga says contracts that outpaced inflation are "the root of the problem." Pay increases, he says, "just got out of hand with respect to what was going on in the overall economy."
Will there be a next time?
United pilots have given up at least 30% of the income in the 2000 contract. Many have lost more than half. For example, some captains flying domestic routes on a Boeing 757 make about $150,000, vs. $220,000 before cuts last year.
Delta, which has lost $3.2 billion in the past three years, wants its pilots to accept similar pay cuts, but the union has refused to discuss anything close to that.
Some Delta pilots resent their airline's decision to cut costs by flying more passengers on small, regional jets with lower-paid pilots. An executive compensation flap at the airline last year hasn't been forgotten by pilots, either.
Despite losses, top executives were rewarded with tens of millions of dollars in bonuses and bankruptcy-proof pension trusts. That news was quietly revealed in a securities filing last spring as Delta CEO Leo Mullin was asking Congress for federal aid and seeking concessions from pilots. Mullin, who returned millions and apologized, never overcame the taint and retired last fall.
There's another big hurdle for union leaders. They see what happens to other labor officials who make compromises to help their companies.
Last year, all three of American Airlines' large unions agreed to $1.6 billion in annual concessions to avert a Chapter 11 filing. Today, the leaders who made those decisions are gone or endangered.
Three of four officers in American's flight attendants union were voted out, and the fifth won narrowly after a recount. The pilots union leader declined to run again. And the Transport Workers Union risks losing its 16,000 aircraft mechanics at American to a rival union in an upcoming election.
Experts who advise unions say many workers don't buy executives' claims that airlines are heading over a cliff.
"Every employee thinks management keeps two sets of books," says consultant Randy Babbitt, a former ALPA president. "They put you in jail for that these days, but you still hear that all the time from (union) members."
Harley Shaiken, a professor at the University of California-Berkeley, says this downturn is marked by a different outlook. In past industry cycles, he says, labor made concessions expecting to regain ground in the upturn.
"Now the feeling is there will be no upturn this time," he says.
Consultant Mike Boyd of Evergreen, Colo., who advises labor leaders, wonders whether trust is so low and the financial gaps so wide that middle ground won't be found in time for some airlines.
"The difference between what management thinks needs to be done and what unions think needs to be done can be billions of dollars," he says. "You don't close gaps that large very quickly."
Workers, passengers stretch airlines too thin
By Marilyn Adams and Dan Reed, USA TODAY
Across the street from United Airlines' bright, glass headquarters near Chicago stands a symbol of an ugly war.
"Retiree health care matters," blares an orange-lettered billboard sponsored by United's flight attendants union. Angry union leaders say the airline tricked 2,100 workers into retiring early with promises of affordable health insurance — then used the bankruptcy process to increase the cost.
United management says it didn't commit fraud, and a court-appointed expert has agreed. Convinced it was misled, the Association of Flight Attendants (AFA) is expanding its campaign of attack ads in United's hometown of Chicago, as well as in Denver and San Francisco, where the No. 2 airline operates huge hubs.
The clash is just one battle in the most pervasive, bitter labor-management struggle since the post-deregulation days of the early 1980s.
Airlines are in a vise. On one side, unions are fighting to hold on to what's left of good wage-and-benefit packages won in previous negotiations. On the other side, budget-conscious travelers are insisting on — and getting — rock-bottom airfares.
As retired American Airlines CEO Robert Crandall puts it, consumers and workers are fighting over the same dollars, and consumers are winning.
"Labor can either work for rates that allow for very low pricing, or they won't be working for very long," Crandall says.
Numbers from Back Aviation Solutions show the underlying economics: Industrywide, labor costs rose 12% for each seat flown one mile in the three years that ended with the July-September quarter of 2003. Over the same period, revenue per seat-mile declined 10%.
Amid the turmoil, says AFA International President Patricia Friend, union officials and frontline workers are more demoralized than at any other time she can remember.
"Sometimes I don't know how people get up and put on their uniforms in the morning," she says.
Most big airlines are reeling from three years of losses, a steep falloff in travel and competition from expanding discounters. United Airlines is in bankruptcy court. US Airways just emerged. Delta Air Lines can't rule out a filing and American narrowly avoided one last year.
Relentless downward pressure on airfares is hitting workers hard. Airline unions, which have lost tens of thousands of members to layoffs, are fighting management efforts to chop pay, outsource work or cut retirement benefits.
Labor representatives say today's executives don't know how to turn around an airline in such a brutal environment. They complain that too many executives are helping themselves to perks even as they're demanding sacrifices from workers.
Divisions at some carriers are "irreparable," says professor Richard Gritta of the University of Portland, in Oregon. Management, he says, has "spent every dime of goodwill."
"I'm not pro-union. But looking at the way airline employees have been treated, I can understand how they feel," Gritta says.
Jeff Brundage, senior vice president of human resources at No. 1 American, says criticism of management fails to recognize permanent changes in the industry. At the big airlines, he says, costs must come down and stay down because of rising competition from low-cost carriers and consumers' insistence on lower prices.
"This is not just another downturn in our business cycle. ... We have to make adjustments in all our costs — labor and otherwise — and make them permanently," Brundage says.
Irreconcilable differences
Employee anger is spilling into public displays. In recent weeks, flight attendants at United and aircraft mechanics at US Airways have picketed the biggest airports their airlines serve.
The International Association of Machinists (IAM), which represents US Airways mechanics, is angry that US Airways wants to outsource some maintenance work. The union says it won't discuss more concessions.
Workers at US Airways, which emerged from bankruptcy protection a year ago but is still losing money, gave up $1 billion a year in two rounds of concessions. The airline terminated its pilots' pension plan in bankruptcy court.
Five of the "Big Six" traditional airlines — American, United, Delta, Northwest and US Airways — are seeking labor concessions, have already negotiated some or are seeking more. The sixth, Continental, is renegotiating contracts this year with all four of its unions. It has lost its advantage of having the lowest labor costs of the group.
US Airways is threatening to sell big assets, such as major airport gates — which would mean more layoffs — if its unions don't reopen their contracts a third time.
Even profitable low-fare airlines aren't immune to employee resentment. Southwest Airlines, whose stock symbol is LUV, has prided itself for 30 years on friendly employee relations. But on Valentine's Day, its flight attendants union picketed airports nationwide, demanding better pay.
Duane Woerth, national president of the Air Line Pilots Association (ALPA), says the turmoil is "across the board," more widespread than he's seen in decades.
The IAM's international president agrees.
"The state of airline labor relations," says Tom Buffenbarger, "leaves a lot to be desired."
Things were different four years ago, when airline profit was soaring. Unions that had sacrificed during the Persian Gulf War and recession of the early 1990s demanded and got richer contracts so workers could share the bounty.
Amid contract talks in summer 2000, for example, United pilots who had sacrificed in the early 1990s quit working overtime, resulting in thousands of flight delays that drove away many passengers.
In a now-infamous remark, Rick Dubinsky, then chairman of the pilots union, said his pilots "don't want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg."
United pilots got what they wanted. Senior international captains ended up with nearly $300,000 a year.
It was a similar story throughout the industry. According to airline consultant Dave Swierenga, a former economist for the Air Transport Association, the average airline job, including management, paid $63,000 a year with benefits in 1999. By 2003, it had hit $76,000 as wage rates negotiated at the end of the boom kicked in.
Swierenga says contracts that outpaced inflation are "the root of the problem." Pay increases, he says, "just got out of hand with respect to what was going on in the overall economy."
Will there be a next time?
United pilots have given up at least 30% of the income in the 2000 contract. Many have lost more than half. For example, some captains flying domestic routes on a Boeing 757 make about $150,000, vs. $220,000 before cuts last year.
Delta, which has lost $3.2 billion in the past three years, wants its pilots to accept similar pay cuts, but the union has refused to discuss anything close to that.
Some Delta pilots resent their airline's decision to cut costs by flying more passengers on small, regional jets with lower-paid pilots. An executive compensation flap at the airline last year hasn't been forgotten by pilots, either.
Despite losses, top executives were rewarded with tens of millions of dollars in bonuses and bankruptcy-proof pension trusts. That news was quietly revealed in a securities filing last spring as Delta CEO Leo Mullin was asking Congress for federal aid and seeking concessions from pilots. Mullin, who returned millions and apologized, never overcame the taint and retired last fall.
There's another big hurdle for union leaders. They see what happens to other labor officials who make compromises to help their companies.
Last year, all three of American Airlines' large unions agreed to $1.6 billion in annual concessions to avert a Chapter 11 filing. Today, the leaders who made those decisions are gone or endangered.
Three of four officers in American's flight attendants union were voted out, and the fifth won narrowly after a recount. The pilots union leader declined to run again. And the Transport Workers Union risks losing its 16,000 aircraft mechanics at American to a rival union in an upcoming election.
Experts who advise unions say many workers don't buy executives' claims that airlines are heading over a cliff.
"Every employee thinks management keeps two sets of books," says consultant Randy Babbitt, a former ALPA president. "They put you in jail for that these days, but you still hear that all the time from (union) members."
Harley Shaiken, a professor at the University of California-Berkeley, says this downturn is marked by a different outlook. In past industry cycles, he says, labor made concessions expecting to regain ground in the upturn.
"Now the feeling is there will be no upturn this time," he says.
Consultant Mike Boyd of Evergreen, Colo., who advises labor leaders, wonders whether trust is so low and the financial gaps so wide that middle ground won't be found in time for some airlines.
"The difference between what management thinks needs to be done and what unions think needs to be done can be billions of dollars," he says. "You don't close gaps that large very quickly."
