No, I am not talking about the expiration of a “cooling off period” under the Railway Labor Act where a deal is not reached and either management or the union has the ability to engage in self help. Rather, I am captivated by the creative bargaining that is taking place between the United Auto Workers (UAW) and the “Big 3” US automakers. As I was flying home yesterday from Boston, I found myself reading an article in the Wall Street Journal twice and reflecting on the airline industry.
The article, How Less Pay, More Risk ‘Sells Itself,’ is a compelling read for anyone in the airline industry click here. The UAW – GM deal has three major tenets:
1) freezing base pay for 4 years
2) shifting a significant amount of the burden of retiree health care from GM to the union
3) creating a two-tier compensation structure in return for job protections of the current workforce.
According to the WSJ, the UAW leadership set out to manage the expectations of its members because it recognized “that the problems facing unionized U.S. auto makers were deep-seated and not the result of cyclical forces soon to change.” These comments were made to the current UAW leadership by Doug Fraser, the revered UAW leader who had to navigate his way through a deep concessionary period in the early 1980’s as the auto industry began feeling the pressures of new competitive forces. Sound familiar? The recognition of “structural change” in the industry and “far sighted solutions” became the mantra for the new UAW leadership as a result of the comments from Fraser.
The GM deal with the UAW was ratified yesterday, the same day the UAW reached a tentative agreement with Chrysler. The Chrysler deal is reported to have the similar tenets as the deal with GM, including the two-tier compensation structure. Now it is off to Ford where the “structural issues” are even worse than those at either GM or Chrysler.
So why are we talking about the auto industry? Because it has similar attributes to the airline industry. Just to name a few: 1) It is capital intensive; 2) It is labor intensive; 3) It is a mature industry; 4) It has major legacy cost issues; 5) It is a hyper competitive industry (although it can be argued it has more global competition versus the airline industry with domestic competition); 6) it is susceptible to the ebb and flow of the domestic and global economies and 7) The cycles of competitive forces impacting labor negotiations are eerily similar.
In this blog I have written about the need to get the mainline GROWING again. We have talked about pilot scope. What pilot scope limits have done is allowed the regional sector of the industry to grow at the expense of the mainline. We have talked about “structural changes” in the industry namely in passenger revenue click here which lies at the core of the industry’s need to maintain a vigilant focus on costs.
We have talked about labor arbitrage and the fact that as total compensation rates have converged, this round of negotiations places us at a crossroads. Or stated another way, an opportunity is present to discuss “far sighted solutions” like reconsidering a two-tier compensation structure as the UAW ultimately did. In fact it was this system that provided the fuel for the airline industry to grow and build lasting networks following deregulation.
This is real “structural change” an issue recognized by the leadership of the UAW, but yet to be acknowledged in public comments by airline labor leaders. So, absent this recognition of the structural change, it is hard to even think about discussing “far sighted solutions.” But the tired notion of entitlement and the restoration of pay levels in an environment where average fares are the equivalent of those earned in the 1990’s is not the answer. The answer is also not base pay rates but variable compensation that can address many of the cyclical issues that have plagued collective bargaining negotiations in the past.
The historic compensation levels in this industry were built largely around technological innovation, government actions and a growing economy. Suffice it to say that two of the three are not present today. And, if government action is needed to make the system operate more efficiently, then technology cannot operate at its stated maximum output.
Somewhere in the problems lie what I think is more effective “self help” – and that is the kind of “far sighted solutions” that incorporate risk for labor, management and shareholders – thereby vesting everyone in the ultimate success of the industry so that everyone is better off in the long term.