Delta is cutting international capacity by 3-4 percent in the face of economic weakness. In an effort to improve profitability, United has announced capacity cuts for 2013. Federal Express just announced a 3-year plan to cut $1.7 billion in costs mainly in its Express unit as revenue suffers from high oil prices and the fact that customers have found cheaper alternatives. The cost cuts will largely be accomplished through headcount reductions which work to eliminate fixed costs.
If FedEx is seriously evaluating headcount at a perpetually profitable business unit, then so should those who believe that American and US Airways together would not need to trim costs any more than has been done at each airline in restructuring.
This is why it is so puzzling to me that Laura Glading, president of the Association of Professional Flight Attendants at American, continues to beat the drum for a merger between American and US Airways.
My guess is that Glading negotiated some concessions for flight attendants in talks with American because she is convinced, or has been promised, that a deal with US Airways will come with some sort of snapbacks or other icing that benefit her members and, perhaps, her position in what would be a larger, more powerful union.
That theory, however, ignores the economic reality of consolidation in today’s domestic market which has proven time and again that airlines with the highest costs have a distinct competitve disadvantage. So Glading continues to view her world through rose-colored glasses, preaching the purported labor benefits of a merger that can’t hope to succeed without the strict cost discipline neither she nor Parker are willing to acknowledge.
Recently, Glading asked flight attendants at both airlines to petition AMR’s Board of Directors to pursue a merger. The petition reads:
Dear AMR Board of Directors,
American Airlines is no longer the brand it used to be. Instead, this once great airline is now at the mercy of a dwindling network and an inferior product.
Fortunately, not all hope is lost. There is a way to right this ship. If American Airlines could merge with US Airways before this bankruptcy has run its course and the AA brand completely destroyed, we can all work together to get American Airlines back on top.
The US Airways merger plan is the best option to correct the problems AA faces. I encourage you to pursue the only path available that will lead American Airlines out of bankruptcy stronger than the day it entered: a merger with US Airways.
American Airlines + US Airways: Our Future Depends On It
One has to wonder exactly what Glading was promised to press so hard for a plan with such limited economic foundation. If US Airways brings so much to the table, then why did the Delta employees band together to block Parker’s ardent overtures? Why did United leave US Airways at the altar at the eleventh hour when a better partner emerged? Yet at American, the unions’ leadership seems to believe that a marriage with US Airways is some sort of panacea that represents no pain/all gain for employees.
Do investors see the proposed merger as American’s path to better labor relations? Not if they’re looking at what’s going down at US Airways, where the union representing flight attendants called for a strike vote after flight attendants failed to ratify the second tentative agreement in six months. Clearly the expectations of the US flight attendants exceed the company’s ability to pay. And this comes after years of acrimonious relations between the airline and its two rival pilot groups which, 77 months after the fact, still prevent a smoothly merged operation between US Airways and first spouse American West. If Parker’s team needs to promise more and more just to get ratified agreements with his own employees, imagine how expensive those labor deals become when you need a fast path toward a joint collective bargaining agreement and a single seniority list?
What might the creditors at American think of the high price tag on labor peace likely necessary to get joint contracts between the two carriers? And what toll will that price take on the combined company going forward? Parker and Glading talk synergies, but both conveniently overlook the expensive path they’d need to travel to get there if, as I suspect is true, labor groups are being told they’ll be made whole – or better – as the reward for their support of a merger.
Flight attendants should think twice before they buy the line that synergies alone obviate the need for real-world cost reductions, particularly with one partner still operating in bankruptcy. A merger for the sake of a merger inside of bankruptcy is not going to make the creditors want less.
Union leaders must accept responsibility for helping to position the company to succeed before they can promise payoffs to employees, particularly in this competitive market. It is not up to management alone to promote fiscal discipline and constructive labor relations when success demands genuine efforts on both sides.
Ignoring the fact that creditors will want to maximize their claim in bankruptcy is a sure-fire way to ensure that the best interests of employees are not represented because there is nothing that can be negotiated that will improve the well-being of members. Ignoring the reality of deteriorating revenue trends and the fact that other carriers are cutting capacity is to knowingly accept an overpromise on the synergies.