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Thursday
Oct112012

Is The Union Leadership at American Really Representing the Membership’s Best Interests?

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.

Tuesday
Nov022010

Swelblog: On Election Morn

This has been a busy month for the US airline industry with earnings and all.  As a result there has been lots of news and most of it good. Of course, two quarters do not make a trend -- something I'm frequently reminding people when I'm out on the road speaking on all things airline industry. 

So as we sit awaiting results on what promises to be a most interesting mid-term election, I want to look back on what has been a very political two years

First up: labor. Unions are all politics all of the time and that has played a big role in the airline industry since President Obama took office.  A cynic would say -- and I might agree -- that unions are simplistic organizations that too often focus on only on the next contract or the next election.  The result is too often a strategy in which they do everything they can to “choke the golden goose” for all of the pay and benefits possible at the time, which only puts their successors in the difficult position of presiding over concessions when the "gains" are no longer economically viable. There are some who say that this blog is too quick to bash unions.  But as I've said before, I'm equal opportunity in calling out bad behavior when I see it. And when it comes to airline labor leadership, I've seen a lot of it.

I've spent a lot of time challenging the leadership at the two largest pilot unions: Captain Lloyd Hill of the Allied Pilots Association and John Prater of the Air Line Pilots Association, both who ended their terms as president this year.  My fundamental criticism was each man’s decision to run on the opportunistic platform that all concessions would be returned and more.  Unrealistic.  Unfortunate.  Unfulfilled.

Lo and behold, the two important pilot unions have replaced “over promise and under deliver” with two new but seasoned presidents: Captain David Bates at the APA and Captain Lee Moak at ALPA.  [Moak has been the subject of much commentary on this blog and I encourage you to learn more about him].  I had the opportunity to spend time with both men last week at the Boyd Group International’s 15th Annual Aviation Forecast Summit in New Orleans.

I don’t want warm and fuzzy from union leaders and I don't expect it from management. What I want is a sense that each side understands and negotiates with a clear understanding of the economic environment in which the industry operates.  From both pilot leaders I am confident that principled negotiations and decisions will be the rule of the day.  From both pilot leaders I sense a potential to depart from gridlock and enter disciplined negotiations.  From management I want to see a renewed effort on communicating clearly the rigors of the business from a global perspective.  That would be true leadership.

Unions and management must break through the gridlock that leads to protracted contract talks and ultimately keeps money from pilots' pockets.  And both sides need to be honest with pilots about the extent to which the world has changed and the industry continues to change with it.  For example, today’s union negotiations should be less about who should fly 76-seat small jets and more about how to position an airline to challenge new and vigorous competition in Latin America, the Middle East and the Asia-Pacific regions. For the mainline carriers, competition is now more about Dubai than Duluth, and more about Auckland than Austin.

It is fast becoming clear that flight attendant union leaders are also increasingly out of touch.  And no one is more out of touch than the President of the Association of Professional Flight Attendants President Laura Glading. Glading, more than any union leader in the past or present, is too quick to threaten chaos and strikes without a clear understanding of the competitive realities that affect contract negotiations.

In her latest unconscionable act, Glading is calling on American Airlines flight attendants to write letters demanding a release to a "cooling off period" and possible strike from the National Mediation Board. Maybe Glading doesn't really understand the Board and its mission which, last I checked, is to try to prevent work actions that would threaten the nation's air transport system. Further, it would be unconscionable if the NMB were to cave into a letter writing campaign by a union that has done more to cause dissension in its ranks than promote the high level of customer service and professionalism the airline needs to compete. 

It has been interesting to watch the flight attendant negotiations at Continental and United. The Continental flight attendants actually voted down a tentative agreement that would have put money in their pockets immediately at a time the industry remains vulnerable economically. "Immediately" should have been an important factor considering that there will need be a representation election between the AFA-CWA and the IAM before any real negotiations can begin at the merged carrier.  My guess is that it could now take a couple of years before either the Continental or United flight attendants realize any economic gains over what they earn today.

As for negotiations with under-the-wing employees other than mechanics, the TWU negotiations at American provide a lens for one of the most difficult issues facing airlines: how to appropriately compensate ground workers.  In almost every case, this work could be outsourced for a fraction of the costs of keeping the work "in house" -- particularly when you consider the comparatively rich benefits package most airline employees receive. The baggage handlers are the most vulnerable yet the union group still holds out with demands for more. 

But if the unions may have a false sense of power because the worst-kept secret in the airline industry is the fact that baggage handlers have long ridden the coattails of the more skilled mechanic group, demanding wages that far exceed what these workers could command outside the airline industry. Said another way, because the skilled mechanic group has "carried" these less-skilled workers for so long, they have received less in negotiations over the years because the political structures of the TWU and the IAM includes baggage handlers in the same "class and craft" as a way to boost their ranks.

This week we will know the outcome of vote of the Delta and Northwest flight attendants, who are deciding whether to organize under the AFA-CWA banner (which would be a first for Delta flight attendants) or be a non-union group.  This election is the biggest yet under a new NMB rule that made the most significant change to the union election process under the Railway Labor Act in 75 years. That new rule likely will be the deciding factor in the outcome.  The change in the rule was all about politics, with a clear disregard for prior practice and arrogance in its refusal to address key subjects in the labor arena, including the ability of employees to decertify a union.

But that is reality in Washington today as it pertains to the airline industry.  We have had a number of issues become political in the name of consumer protection.  There are a number of matters being regulated or legislated in the name of safety.   A FAA Reauthorization bill cannot get passed because of all the non-FAA issues lawmakers stuck in the Senate and House versions as goodies for their own political constituencies.  But no matter the outcome of the national elections tomorrow, gridlock promises to rule the day in Washington for the next two years as well.

As British author Ernest Benn wrote:  “Politics is the art of looking for trouble, finding whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy.”  That sums up how Washington deals with an industry that delivers value and jobs to the economy each and every day.

Monday
Feb082010

February 2010: Short on Days, Long on News

This month promises to be full of news in the airline industry, and potentially in a big way.  February is the month where we celebrate Groundhog Day.  And like the movie of that name, we’ll probably see some of the same stories emerge, over and over again.

Colgan, Congress and the Regulators

One of the biggest, in my view, is the ramifications of Colgan 3407, the subject of many megabytes on Swelblog.   The tragic crash of the Colgan Air flight came last year on February 12 and there have been a number of Congressional hearings since focusing on the safety of the airline system generally and the regional airline system specifically. Last week, Federal Aviation Administration Administrator J. Randolph Babbitt and DOT Inspector General Calvin L. Scovell III testified before the House on the status of the FAA’s response.. 

In its Call to Action, the FAA is looking at fatigue; crew training; pilot qualifications; training program review guidance; pilot mentoring/experience transfer programs; pilot records; and code share agreements.   

New scrutiny on code sharing comes courtesy of Reps. James Oberstar and Jerry Costello, who have demanded that the DOT IG investigate these widely-used agreements between airlines. The congressmen ask, at a minimum, that the investigation consider:

  1. Whether the DOT and the FAA have the legal authority to review code -share agreements between mainline carriers and their regional partners;
  2. How mainline carriers ensure that their regional partners operate at the same level of safety; and
  3. Whether the flying public has adequate information about code-sharing arrangements to make informed decisions when purchasing a ticket.

As if this story needed fuel to fire the debate, PBS Frontline will air an hourlong investigative report on the Colgan crash on February 9.   If PBS publicity on the subject is any indicator, then this piece will be will be as much about sensational journalism as it is about half-truths.  Already, Frontline is making much of the low salaries some regional pilots earn in a story centered on Colgan but that by all appearances paints all regional operators with the same brush. It will be important to parse the information offered and the story-telling in this piece. 

oneworld and an Immunized Atlantic (and Pacific?) Alliance

As STAR and SkyTeam fortify their alliances with new partners, anti-trust immunity and “metal neutral” joint ventures; American, British Airways, Iberia, Finnair and Royal Jordanian await word as to whether the third time will be a charm for oneworld to operate with immunization across the Atlantic. In a January article, Lori Ranson of Airline Business writes about some of the issues before the regulators.

This is only one big decision affecting AA – another is the continuing saga regarding whether Japan Airlines will stick with oneworld or submit to entreaties from Delta and join SkyTeam.  [NOTE:  JAL announces its intention to stay with oneworld on 2/9/10]  The media has been all over the board on this one, with this week’s predictions going oneworld’s way. This story has had more leads from unnamed sources than even the rumored merger talks in past years involving Continental and United, and United and US Airways.

But one thing is certain, and that is February 10, 2010, when four slot pairs become available to US airlines to serve Tokyo’s Haneda Airport under an “Open Skies” agreement between the U.S. and Japan. [DATE moved to 2/15 due to weather in Washington DC]  Initial applications for those slots are due this Wednesday, with final submissions due to the US Department of Transportation by March 1, 2010.  The winner could be flying as early as October of this year when the fourth runway at Tokyo’s downtown airport is scheduled for completion. 

As part of the pact, Japan also made immunized alliance relationships for JAL and ANA a condition of the deal. And it has long been thought that if applications for immunity were not made by mid-February then it would be difficult for the US government to complete the necessary analysis in order to meet the October deadline.  Few, if any, ATI applications have been approved in eight months or less.

United/Continental/ANA have already applied.  JAL is bankrupt but needs to pick a partner soon.  That means that the ongoing soap opera playing out in Japan may soon be coming to an end. 

The National Mediation Board and Airline Strikes

On January 21, 2010 the Association of Professional Flight Attendants (APFA) ended a two-week intensive bargaining session with American Airlines without reaching a deal. Leading up to these talks, the union had been working hard to rally its members, even going so far as to stage a mock strike with limited impact. Next up:  yet another round of mediated negotiations in Washington, DC beginning February 27.

Serious industry watchers may conclude that a a round of talks in Washington at this relatively advanced state of negotiations could mean that a “release decision” is imminent.  Another viewpoint is that the NMB might be more likely to put the negotiations “on ice” given the wide gap between what the union demands and the company believes it is able to provide.  Even in historically difficult times for the US airline industry, the APFA’s rhetoric suggests that the union will pay little to nothing in efficiency in return for the improved economics it seeks.  So these talks may be the next milestone marking how Obama’s NMB will deal with labor negotiations in the airline industry.

If nothing else, the APFA has been reckless in talking about a strike.  Long-term observers may recall that the union pulled off a coup in 1993 with a strike even the airline didn’t think would happen; and the union leaders seem to think they could do it again.  So as APFA’s strike talk continues, American did what a responsible airline must do, confirming in a media story that it is working with the FAA to prepare, if necessary, to train replacements if the APFA strikes.  Clearly the news story made a few APFA members nervous as, shortly thereafter, APFA President Laura Glading criticized the company, calling its contigency plans "an ill-conceived and doomed strategy." My question to Ms. Glading is:  How, then, is your strike rhetoric not an ill-conceived and doomed strategy not only for your members but for all employees at American Airlines?

As a footnote, last week the story took an amazing turn with news that former TWA flight attendants – nearly all of them furloughed after the APFA put them on the bottom of the seniority list following AA’s acquisition of TWA's assets -- would be willing to cross a picket line and work if the APFA went out on strike. Now I wonder how much time Glading is spending reliving the strike of 1993 when faced with the prospect of an airline ready with trained replacements at hand, including a group of flight attendants with an axe to grind against her union?

Finally, February may be the month we get a decision from the NMB following the effort of two Board members to change by fiat the law that governs labor law in the railway and airline industries and would make it far easier for unions to organize workers.  The decision has, however, generated a tremendous amount of comment and controversy, so we may be waiting until March Madness for that story to break.

Stay tuned. It may be a wild ride.

 

Tuesday
Nov172009

Self-Help or Self Sacrifice or Self Fulfilling Prophecy? What Will This Accomplish?

This week, Terry Maxon of the Dallas Morning News  wrote about the “surprised” reaction at American Airlines when a correspondent on NBC’s Today Show reported a “potential strike” at the airline following the holidays.

The show was a bit vague on its sources, but my best is that Laura Glading, President of the Association of Professional Flight Attendants, is working her media list to drum up a little coverage for the union’s latest negotiations gambit.

I consider myself a pretty good historian on most things airlines over the past 30 years.  And I remember the APFA’s divisive and destructive Thanksgiving strike in 1993 that attempted to bring the airline to its knees over the critical holiday travel period.  Last year, the union “celebrated” the 15th anniversary of the strike with a campaign they called “Remember November.”

For this year’s anniversary, the union is doing its best to remind the company of the pain it could again impose in a campaign that all but threatens another strike . . . this one called “Got Guts?” 

To be fair, the APFA has made clear that they do not plan to disrupt American’s operations over the holidays.  However, the union did say it was prepared to strike next year if no contract agreement is reached by January, with Glading saying she will consider asking the National Mediation Board for a “release” from negotiations – the first step toward seeking the right to “self help” under the Railway Labor Act.

First, let’s review the rules.  The NMB will grant a release only if it believes negotiations are at an impasse, and the bar for that is set pretty high.   A release would then open a 30-day “cooling off” period.  Only after that point and if the parties fail to reach agreement can either side engage in self help --  which for a union means work stoppages or strikes and for management allows a company to impose its “last offer” at the table or lock out striking workers.

So let’s be perfectly clear.  The union can’t strike now, no matter what the alarmists may say on Today. There is no guarantee that the NMB would grant a release. And even then, the RLA has several protections built in – the cooling off period and the prospect of a Presidential Emergency Board – to prevent the kind of work stoppages that could ground an airline and impact interstate commerce.

So why is the flight attendant union playing it out this way? Why on one hand are they talking strikes (which in some cases proves reason enough for passengers to “book away” from a particular airline) and on the other hand trying to reassure passengers that their holiday travel plans are safe?

Because that’s what unions in the industry too often have done. . . talk out of both sides of their mouth – paying lip service to their commitment to passengers while at the same time making demands and engaging in work actions that threaten the airlines’ ability to do business.

The Boeing Lesson

Let’s consider the real impact of strikes.

Last September I wrote here:  “In what is starting to be a rather ho-hum event in the aerospace/defense world, the International Association of Machinists and Aerospace Workers (IAMAW) have decided to strike the Boeing Company for the second time in three years. Is this a “yawn moment” or a precursor of things to come as the airline industry begins in earnest the renegotiation of concessionary contracts?”  

In its negotiations, Boeing was looking to balance its economic offer to the union with added flexibility in its contracts the company needed to address the ups and downs in the business cycle.   The IAMAW was not willing to comply. So Boeing ultimately settled with the union, but not before further damage was done to an already fragile relationship. 

The real story, however, played out a few months later, when Boeing announced its decision to build a second production line to build the 787– not in Washington, its corporate home for decades, but in the right-to-work state of South Carolina.

Washington State officials reportedly worked hard to try to convince Boeing to stay, but at the end the state’s governor said the company’s decision to build the line in South Carolina came down to one thing: its difficult relationship with the Machinists union and a failure to reach a no-strike deal. 

And the pain may not be over for Washington’s IAMAW workers. At some point Boeing will need to begin manufacturing replacements for today’s 737 and 777 lines.  Where will those planes be built? 

What is particularly telling in this case is that the IAMAW was publicly dismissive of the fact that the union’s actions had anything to do with the company’s decision to add capacity in South Carolina. 

This is typical of labor of late.  But at some point unions in this space – whether airline or aerospace -- need to recognize the fundamental flaw in their collective bargaining agreements that too often work to choke productivity rather than promote it.

Looking ahead, I believe that the current round of airline negotiations must continue the transition/transformation underway in the US airline industry and address the sticking points in its contractual relationships with its labor force.  These include pay (which is unlikely to return to 2001 levels)  and productivity (which unions resist for fear of losing dues-paying union jobs).

The crux of the problem for labor as I see it is a failure to appreciate the delicate balance between pay and productivity. Without recognition that balancing the formula is critical, the industry, and individual carriers, will continue to find a more efficient means of doing the work.

Sadly, productivity is driven at its core by seniority and all the protections I’ve discussed in the past that unions provide so that long term members feast while newer members are left to feed on the scraps. 

Despite many of the gut-wrenching changes and cost cuts during the last negotiations cycle, the industry did nothing to restructure seniority – the “third rail” on union politics.  In my view, organized labor’s blind commitment to preserving seniority lies at the heart of a race to the bottom.  Yes, the revenue environment contributes more than its fair share to airline’s financial woes, but at some point labor has to accept responsibility for the role of these Depression-era ideologies.  The reality is that, last time around, airline wages were cut more than necessary because of union insistence on preserving seniority and limiting productivity.

Back to the Cabin

So it is in this environment that the APFA waves its strike threat like a red flag in the bullring.  The APFA website even features a report the union commissioned highlighting the failures of airline deregulation and the economic pressures on the industry. On a recent trip to Washington, Glading joined AFA-CWA President Pat Friend in urging the Obama Administration to “stabilize an industry that's not working” and reverse the “damage done” to the traveling public.

Call me nuts, but I’m guessing that Glading’s talk of a strike runs counter to her desire to “stabilize” the industry.  Perhaps other carriers would benefit from the union’s effort to ground the country’s second largest carrier in terms of revenue. But American – and all of its employees – wouldn’t see many benefits.

Or am I to believe that glorifying 1993 and rallying her members to strike in one of the most difficult times in airline history would alleviate the “damage done” to travelers?

I’ve said it before and I’ll say it again – the U.S. industry needs to do a better job of managing labor costs in boom and bust cycles in which fat contracts are approved in boom years only to require painful and at times draconian cuts when the cycle turns down.

Tellingly, and perhaps predictably, the unions are hoping a labor-friendly administration in Washington will help them gain new power in the industry – evidenced also by their efforts to change election rules at the NMB to make it easier to organize workers (even if the AFA-CWA, which is trying to organize at Delta, is hiding behind the AFL-CIO’s Transportation Trades Department to do it.)

What’s happened in Detroit over the last year is a pretty good indicator of what happens when an industry fails to get its costs in line with the market.  A smaller airline industry can’t absorb the same costs – including labor costs – that it did ten years ago.  Already we’ve been at this restructuring thing for more than five years and it’s pretty clear that the market has spoken.

So I’m really confused by what the APFA thinks it will get in return for a strategy that will only hurt the company that employs its members.

I don’t know what a strike buys anyone in this fragile business environment except, perhaps, an unpleasant ending.  Where I do agree with Ms. Glading is the importance of recognizing history.  I, for one, remember Pan Am, Eastern and TWA.  At the time, most believed those proud companies could weather any storm.  And I’d guess there may be another airline on that list before this cycle is complete.

If the past eight years have been rough and tumble, imagine what the next few years could be like as airlines reach pressure points in contract negotiations.   In that case, I can only imagine what would be left to celebrate on the 20th anniversary of APFA’s Thanksgiving Strike.