Soapbox - MIT's International Center For Air Transportation
William Swelbar, Research Engineer, Massachusetts Institute Of Technology’s International Center For Air Transportation
“The ability to carry excess headcount is a luxury of yesterday’s industry that cannot be afforded in today’s—and perhaps, more importantly, tomorrow’s industry”
Labor relations around the globe are back in the headlines. Airline management and union leadership need to make long-term decisions in order to break the destructive precedents of pattern bargaining.
In his recent State of the Air Transport Industry speech, IATA Director General Giovanni Bisignani said, “Labor, out of touch with reality, is the next risk. We cannot pay salary increases with our $47 billion in losses. Pilots and crew must come down to earth and strikes at this time are shortsighted nonsense. Labor needs to stop picketing and cooperate.”
Bisignani’s comment is cold truth, but airline management should feel its chill as much as labor.
Given the high fixed costs of the industry, airlines can rarely afford a strike or intermittent work stoppages. Management, though, has to accept some responsibility for labor’s actions. Time and again, airlines historically agree to contracts during economic up cycles that are simply too rich, then face the prospect of paying the bill during subsequent downturns.
Labor is complicit in this short-sightedness, primarily because unions are not structured to manage the responsibility they possess. Unions are highly simple political organizations and they only have a short-term view. Their leaders are politicians whose goals are similarly short term—to stay in office.
Volatile prices are unsettling in commodity industries. And airlines are very much in the commodity business. Beginning in late 2000, volatility came in the form of airline travel spend capturing a smaller share of the gross national product. Suppressed demand accompanied the economic recession. Today’s volatility is centered on oil prices and currency. In the future, continued volatility in labor prices could prove disastrous because there are no other areas on the income statement that can cross-subsidize labor costs that are above what the market will bear.
British Airways standing up to demands by flying through strikes; Lufthansa ultimately winning scope relief from its pilots; and Air France now looking to reduce headcount by 2–4% all address the importance of breaking past patterns. US carriers also face the need to win productivity gains. For incumbent airlines these changes are also about survival since there will always be someone else to take their business.
I have never seen labor accept any responsibility for the current volatile condition of the industry. Today’s airlines need to find efficiencies at every level. The ability to carry excess headcount is a luxury of yesterday’s industry that cannot be afforded in today’s—and perhaps, more importantly, tomorrow’s industry.
For organized labor—and by extrapolation, airline labor—to be successful, unions can no longer be in the business of keeping themselves in business by maximizing dues income. It has to be about meaningful change.
That change must entail understanding the new economic realities, or as the Harvard Business Review recently opined, “that there will be no going home again… that the landscape of business has been forever altered.” Survival in the world, and in the business environment, is about adapting. Can unions adapt to the idea that instead of being in business to secure decent wages for the greatest number of people they might be better off securing great jobs for fewer workers?
The industry must face other cold, hard truths. British Airways and the three strikes by its cabin crew members present one of the starkest lessons. Because strikes are labor’s tool to exert pressure on management to succumb to demands, more airlines might need to accept work stoppages in order to end the destructive and unsustainable cycle of pattern bargaining. For airlines, this round of negotiations with labor is about the long term, while labor continues to operate with a short-term mindset.
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