Out of the Ashes: Building an Effective Labor Relations System in Airlines

Transcription

1 Out of the Ashes: Building an Effective Labor Relations System in Airlines MIT Global Airline Industry Conference April 8, 2003 Jody Hoffer Gittell, Thomas Kochan, Robert McKersie, & Andrew von Nordenflycht

2 Main Points Labor Cost Reductions: Necessary but not Sufficient for Large Network Carriers Need Fundamental Changes in the Quality of Labor Relations Workplace Culture & Coordination Negotiations and Dispute Resolution Strategic Interactions Government, Bankruptcy Court, or Investor Relief/Support should be made Contingent on Evidence Improvement Plans are in Place

3 Labor Costs: Only Part of the Problem & Solution for Large Network Carriers Real unit labor costs 21% lower today than 1980 But RASM are 32% lower than 1982 costs exceed revenues Labor costs of low cost airlines 50% lower than top carriers Wage movements out of synch with revenue movements Past Labor cost reductions provided short term relief but not long term improvements in operational performance (productivity or service)

4 Figure 1 Labor Costs as Percent of Revenue, Major Carriers Weighted Average 50% 47% 45% 44% 40% 35% 40% 40% 36% 38% 39% 36% 36% 36% 37% 38% 39% 38% 38% 37% 35% 35% 35% 36% 36% 30% 25% 20% 15% 10% 5% 0% (1/2) Source: Department of Transportation Form 41 (from Database Products, Inc.)

5 Figure 2 Revenue, Operating Costs, and Labor Costs per Available Seat Mile, Real Values (2001 $) Major Carriers Weighted Average $0.16 $0.14 $0.12 $0.10 $0.08 revenue per ASM total cost per ASM (CASM) labor cost per ASM (LCASM) $0.06 $0.04 $0.02 $ (1/2) Source: Department of Transportation Form 41 (from Database Products, Inc.)

6 100% 90% 80% Relative Unit Labor Costs, 1997 & 2001 Carrier as % of Highest Cost Carrier, based on Labor Costs per ASM % 60% 50% 40% 30% 20% 10% 0% USAIR UNITED NORTHWEST AMERICAN DELTA CONTINENTAL SOUTHWEST AMERICA WEST

7 100% 90% 80% Relative Labor Cost, 1997 & 2001 Carrier as % of Highest Cost Carrier, based on Labor Costs / Revenue % 60% 50% 40% 30% 20% 10% 0% UNITED AMERICAN USAIR NORTHWEST DELTA CONTINENTAL SOUTHWEST AMERICA WEST

8 100% Mechanics Pay Rate as % of Rate at Highest Carrier, 2001 (pay rate of most senior mechanic) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% N'West Delta S'West USAir Cont Amer ATA United AmW AirTr

9 Growth in Pilot Wage Rates vs. Growth in Revenue per Employee: vs % Pilot Wage Rate Changes Averaged Across Four Aircraft Types at 21 Airlines Pilot Wages 25% Revenue per Employee 24% 20% 18% 15% 10% 5% 4% 0% -5% -10% -8% % Change % Change Source: Department of Transportation Form 41 (from Database Products, Inc.) and Airline Industrial Relations Conference

10 Pilots: Issues, Options & Changes High Labor Costs Wages escalated in Hours of work schedules and productivity Firm Specific Seniority Scope Clause detailed rules governing use of specific aircraft and routes Options Family seniority jets for jobs Is a transition to industry seniority possible? Can consensus on a set of wage criteria be achieved? Cross firm adjustments Cross occupational differentials (e.g., pilots, mechanics, etc.) Can relational coordination/respect, etc. with other groups be improved?

11 Improving Workplace Culture & Coordination Culture & coordination affect productivity, service quality, & profitability Delta pre 1993; CN, post 1994; SW 1980-now Challenge: To learn and adapt what works Challenge lies in coordinating across employee groups in separate bargaining units Can firms learn from each other? Can unions coordinate their efforts? Is a cross-occupational dispute resolution system needed?

12 Negotiations Labor-management conflict, extended negotiations negatively affect productivity, service quality, and profitability 16 month average negotiations length much greater than under NLRA Varies widely across carriers Need company-union negotiations protocols

13 Figure 5 Airline Dispute Resolution under the Railway Labor Act # of Contracts Total Mediated 1st TA Arbitrated Released PEB Strike Contracts Rejected Source: Airline Industrial Relations Conference

14 Figure 6 Percent of Contracts Ratified More than One Month Past Expiration Date: Under NLRA vs. Airlines Industry 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Private Sector (NLRA) Private Sector (NLRA) Public Sector (NLRA) All Airlines Major Airlines Sources: Airline Industrial Relations Conference ( ); and Federal Mediation and Conciliation Service National Performance Review Surveys &

15 Dispute Resolution under the RLA: Lessons from other Sectors Key lessons: No one best way or procedure Parties must be committed to making it work Multiple options preferable to any single model Transformation of NMB role needed Challenge: How to motivate industry and labor to reform the process and take ownership of it?

16 Figure 7 Alternative Forms of Interest Arbitration Arbitration Voluntary (agreed to by parties) Arbitration Decision-Making Rules Compulsory (required by law) Arbitration Structure Final-Offer Arbitration (arbitrator must choose either employer or union proposal) Conventional Arbitration (arbitrator is free to fashion any award deemed appropriate) Panel of Several Arbitrators Single Neutral Arbitrator Final-Offer by Issue (arbitrator may choose offers of union or employer separately on each issue) Final-Offer by Package (arbitrator must choose entire package of proposals of either union or employer) All-Neutral Panel Tri-partite Panel (union, mgt, and one or more neutrals) Source: Harry Katz and Thomas Kochan, Collective Bargaining and Industrial Relations. Homewood, Ill.: Irwin (1988)

17 Strategic Level Interactions ESOP Evidence Disappointing to Date Can t stand alone or be viewed as a purely financial deal Only works if viewed by all parties as a part of a fundamental transformation of the culture and quality of labor & employee relations

18 Options for Reform Negotiate company specific Recovery Compacts that include: Strategies for changing workplace culture & coordination Negotiations & dispute resolution protocol Plan for cross occupational/cross union coordination & dispute resolution Reform RLA to provide for variety of options Give industry and labor limited time to propose reforms Transform role of the NMB (with industry input) Create on-going forum for labor & management to share experiences and foster continuous improvement Industry conference to seek consensus on wage criteria Share lessons from recovery efforts to date

19 Options to Motivate Action? Congress: Give the industry and labor a limited time to negotiate reforms; otherwise impose its own Administration: Make further aid contingent on negotiating Recovery Compacts Bankruptcy Ct. or Investors: Require Recovery Compacts