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Airlines, airports and unions: Not always a happy mixture

Airline Leader

The protectionist nature of airline regulation encourages union activism. The airline business is by definition riddled with protectionism from the ground up. The system devised 75 years ago is basically unchanged and reflects many of the needs of that immediate post-war world. Basically all countries wanted to have the right to operate their own airlines so that they could be connected internationally to the points they needed to travel to and from.

Summary
  • The protectionist nature of airline regulation encourages union activism.
  • Domestic markets remain protected from foreign competition, leading to consolidated profits for some airlines.
  • Government intervention and regulatory constraints encourage union power and influence.
  • Strikes and threats of strikes can have a significant impact on airlines, leading to financial losses and passenger inconvenience.
  • Unions can use strikes to force policy changes and protect their own interests.
  • The growing demand for qualified airline staff, particularly pilots, engineers, and cabin crew, may enhance union power in negotiations.

This usually meant they were government owned, with all the inefficiencies that went with that; and being of greatly different sizes and market power, the system was designed to support the speed of the slowest ship in the convoy. The overwhelming need to ensure a safe industry has unwittingly lent strength to these commercial impediments.
It also became a very fertile breeding ground for organised labour, across all aspects of the industry's very complex array of activities.
Domestically, only locally owned airlines could fly. Remarkably, domestic markets remain almost wholly protected from foreign competition to this day - and there is little pressure to change the status quo. The inherent subsidy profile helps explain why a tightly consolidated US airline industry has recently been able to account for around half of the world's airline profits, while carrying only about a quarter of the world's passengers.
A level of governmental restrictions of this magnitude, inevitably means normal corporate behaviour is impossible and airlines and employees alike constantly seek to use the distortions to their advantage. Ironically, with the exception of the few legacy airlines that are able to generate substantial profits in their protected domestic markets, those airlines which have been the beneficiaries of the largest amounts of direct and de facto subsidy have often performed worst.
The poster-children of this unattractive phenomenon include airlines like Air India (subsidised by as much as USD1 billion annually), a struggling Alitalia, Air France and a number of smaller airlines. In each case, the constrained regulatory system and government intervention has encouraged union power to exercise unhelpful influence.
Industry safety is critical - but also often used as a negotiating tool
Unions go hand in hand with legacy airlines and, to a lesser extent, to airports as well. The complexity of the aviation business and its high profile make it a soft target for anything from pay and condition demands to political weapons. Its global nature too means the potential for global coordination of claims and standardisation of conditions - usually upwards, to meet the best of conditions.
At a professional level, unions can also have an important role to play in areas such as safety standards; as the people at the coal front, pilots and technicians can often be useful whistleblowers to alert authorities to possible systemic shortcomings. Pilots have for example been vocal in the current review of issues surrounding the 737MAX. Pilots, engineers and other professionals also participate actively in national and international design and oversight of safety systems, a necessary role when they are to be in the driver's seat.
But this role can easily become a two-edged sword; using "safety" as a negotiating weapon (coupled with appropriate media coverage) to raise pay levels is not uncommon, for pilots, engineers, cabin crew and air traffic controllers.
For airports, again with its variety of functions and overlapping transport unions, the level of union activity has never been as high as in the airline business itself, although ground handlers are probably an exception.
The nature of all organised labour activity necessarily extends beyond the industry itself and the regional reviews in this Airline Leader global analysis of organised labour is also heavily influenced by national employment laws and culture, as well as wider transport norms, making for a rich tapestry of different conditions.
Even in developed and relatively homogeneous markets like the North Atlantic, these local differences can be marked, becoming an important issue in the US-EU multilateral agreement negotiations. Driven by US pilot pressures, the Obama administration sat on Norwegian's application to operate from Ireland to the US for many months because the pilots union objected to technicalities over designation and the nature of the LCC's pilot hiring practices, on the grounds that they led to a lowering of safety standards.
Airline interests and union goals do not always coincide
It's never all that clear where union and employer interests coincide. In many businesses a lot depends on the quality of management and the standard of communication. Where industry growth is possible - and it usually is in aviation - there should usually be quite close synchrony.
But adding to the mix (i) a host of legacy airline businesses (ii) used to receiving government support in one form or another, (iii) confronting a sea change in cost profiles as LCCs flood the market; and (iv) the liberalisation of international access, you have a challenging equation. Even where airlines are healthily profitable - a rarity for decades - the changing structure of the market means they must still rein in costs to prepare for the future. But, as the CAPA analysis on the use of the word "strike" in media reports outlines, there has in recent times been an almost direct correlation with airline profitability. That is not necessarily as unreasonable as it may appear: "we want a piece of the action!". Strike threats can lead to a bigger piece.
Strikes and threats are not of course the key player in this action. Negotiating pay and conditions forms a large part of the business of unions in their dealings with management.
Negotiating pay and conditions is a never-ending cycle
Few airlines escape the constant review of flying and maintenance staff pay and conditions. Almost as soon as one cycle is completed, preparations for the next round begin.
This occupies massive amounts of management time, as well as being fertile grounds for discontent, especially for legacy airlines, where it is not uncommon for management to have to negotiate with a dozen or more union groups. It was reported that SAS, with its tri-national ownership (and extensive government intervention) at one time had 17 unions. Equally, negotiations can be prolonged, sometimes for many years.
Before the Southwest Airlines' mechanics' dispute burst into the headlines in early 2019, with bizarre safety accusations from the airline's pilot association, pay negotiations had been continuing for seven years. That delay can be an effective management negotiating tool too, as meanwhile the old conditions may remain unchanged, but it is hardly where anyone really wants to be.
But strikes and the subliminal threat of strikes loom large
Airlines are extremely exposed to the potential for strike action. Pilots in particular have often leveraged their ability to withdraw services, but cabin crew, maintenance engineers and others can easily ground an airline when negotiations go nuclear.
All sides recognise the mutual self-hurt that a strike can cause, so there is a natural reluctance to escalate to the level of pain involved in grounding an airline. The pain however is unevenly distributed and complicates the short term-long term calculation; that is, the short term benefits of gaining better pay or conditions is not easily offset by the longer term damage done to the airline - and to a lesser extent employees - alike. A further distortion of the balance occurs where the union can rely on the national government to intervene to protect their jobs, so they can strike or threaten with impunity.
The system is geared towards punishing the airline, giving added power to the unions. Predictably this is notably the case in the EU, where passengers inconvenienced by a strike can claim not only a refund where a flight is cancelled, but also the cost of any additional travel costs incurred. So the airline not only loses the revenue and any profit, but can be liable for further costs.
Simply the threat of strike can be very powerful - and costly to the airline. It is no coincidence that strike action is often threatened before major holidays, where travellers typically have to book further in advance to secure their travel plans. Even if the strike doesn't occur, there will be many would-be passengers who will look for and buy on alternative airlines, causing loss to the airline.
This phenomenon was very much in play in one of the more dramatic industrial actions of the past decade, as airlines were recovering from the global financial crisis, in late 2011. In support of wage claims, Qantas' maintenance and baggage handler unions conducted sporadic short notice strikes and promised to shut the airline down over the key Christmas period. At the same time, the long haul pilots were undertaking a more sedate but nonetheless threatening line of behaviour.
By late October everything was looking dark for Christmas sales; forward bookings were leaking heavily, with no prospect of resolution for the final quarter, unless management caved in to what were seen as impossible demands. CEO Alan Joyce took the unexpected move of shutting down the entire airline. It stayed that way for several days, until a legislated solution was enforced restoring a level of normality.
Here the unions had overplayed their hands, certainly not expecting such drastic action. Fortunately, the Australian employment system had administrative checks and balances under which resolution of the issues was possible. The cost to the airline was estimated at nearly AUD200 million.
Forcing policy change is another union role
Strikes, especially by pilot unions, are not exclusively directed at pay and conditions. Quite frequently labour groups will exercise their ability to disrupt operations in order to redirect management policy. This Airline Leader report highlights the role of French unions in undermining management attempts to establish low cost operator subsidiaries. Similar action, to a greater or lesser extent has occurred at other airlines; Lufthansa has been unsuccessful in creating genuinely low cost subsidiaries, due to labour resistance.
This was at least part of the reason Lufthansa moved to close down subsidiary Eurowings' long haul operations in Jun-2019, with the closure of several bases. Although full details were not announced, this presumably also involves staff reductions.
It is not always the case that management gets it right and pilots unions in some jurisdictions have made serious attempts to educate themselves in order to offer informed (partly impartial) judgments on airline policy matters. But their default position always has to be what is in the pilots' own best (short term) interests.
For example, in Eurowings' case, the airline was forced to operate six different aircraft types, hardly ideal for an LCC, to say the least. Management would probably argue this was at least partially the result of union intransigence in restricting policy options. Whether the same could be said of an ill-fated combination with Brussels Airlines perhaps falls into another basket.
In the US, examples abound. One area of contention for Southwest's pilots was management's attempts to establish codeshares on some cross border international routes, on the grounds that this was the thin end of the wedge that would prevent the airline from expanding in its own right. Other reasons made such a move difficult, but the pilots were clear on their position. Outsourcing of any kind tends to attract union antagonism.
It is almost certainly a union-driven campaign too that continues to motivate the CEOs of the US' Big Three full service airlines to push against the Gulf Three. The thrust of trying to constrain growth by Emirates, Etihad and Qatar Airways, is also to protect the transfer role of the US majors' European partners, who feed traffic into the North Atlantic immunised JVs. But that doesn't explain why American CEO Doug Parker is so vociferous when his European JV partner British Airways and the IAG group are so supportive of the Gulf carriers, even bringing BA shareholder Qatar's flag carrier into the oneworld alliance.
Airline growth can only strengthen union roles in the industry
Qualified professionals in the airline industry are hard to find. There was a time when the "sexy" nature of the business created a constant flood of would-be pilots, cabin crew and engineers, but times change. There are distinct geographic differences here: applications for flight attendants in Asian airlines usually far exceed the number of jobs.
But pilots and engineers offer more complex challenges. A flight attendant can be trained in a couple of months. Qualified pilots and engineers take years to produce and their nexus with airline safety is much more evident.
Recent years of high passenger traffic growth have stimulated record aircraft order numbers, to meet projected expansion needs, but increasingly the dilemma for airlines is where they are going to find enough pilots to fly them. This is further amplified by the greater accent on shorthaul LCC narrowbodies operating with higher utilisation than legacy airlines.
Boeing and Airbus paint seemingly insoluble scenarios of future demand for qualified professionals. The numbers shown in the Boeing graphic are even more perplexing when retracing earlier projections: each year the projected annual demand for pilots has fallen as much as 50% below the long term needs. In other words, the shortage is rapidly increasing.
Aircraft engineers are also in short supply. In their case, the picture was not quite as bleak, as aircraft progressively required less maintenance. For flight deck crew, there is no such solution, at least not in the short term. Even if single-pilot flight decks become the norm - as surely they must, with new technology and capabilities - the solution appears beyond reach.
In all cases though, these impending shortages must inevitably increase the bargaining power of those trained staff who do make it to the front line. What changes will this mean for management-union negotiations is still unclear, but what appears certain is that the status quo will not survive.

Why demand for qualified airline staff may enhance union power

Boeing says we'll need 743,000 fixed wing airline pilots over the next 20 years. Boeing: "Despite strong global air traffic growth, the aviation industry continues to face a pilot labour supply challenge, raising concern about the existence of a global pilot shortage in the near-term." This seems an almost impossible target, as many experienced pilots are retiring and pilot training numbers in the pipeline fall well short of the short term needs.

….632,000 Technicians are needed
The average age of qualified engineers means there will be disproportionate loss of senior skills in the short term.

…and nearly a million cabin crew
Probably a less problematic supply problem than the other professionals, but short term needs must be met.