The Allied Pilots Association (APA) representing the pilots at American Airlines, has been especially active of late in trying to torpedo the pending Antitrust Immunity application between their company and other members of oneworld. The alliance currently is the only one lacking immunity and, as such, claims to be at a serious disadvantage vis-à-vis Star and SkyTeam which currently operate under such an agreement.
Irrespective of one’s stance on the value or credibility of alliances - especially those that are immunized and operate in close coordination - they are a reality in today’s market. The airlines of both Star and Skyteam that are so linked, regularly cite both corporate and consumer benefits that are a direct result of the linkage.
While other carriers’ union groups have voiced objections of one sort or another, the workforces have, in general, been co-operative with the alliances’ development. Not so at American. The union has been both vocal and visible in its opposition, with AA pilots going so far as to picket in Washington at the DOT.
This is just the latest in an ongoing battle that rages between American’s management and its pilots. In January 2008, the union publicly excoriated AA for delays and cancellations that it attributed to a pilot shortage brought about by excessive furloughs.
There is plenty of history. A decade ago, pilots and management had a very public stand-off regarding a pilot sick-out. The cost to the airline was considerable. There have been other dust-ups over myriad issues including the introduction of the MD-11. While labor/management relations at most US carriers are often strained, the links between AA and its pilots are, at best, tolerable. At worst, they strain the finances of an airline under pressure. This is not what logic would suggest, at the only major US airline which as not sought bankruptcy protection.
Cause and effect? Maybe not
According to APA’s President, Lloyd Hill, "These alliances have cost American jobs and they have proven detrimental to consumer interests around the world." But the union’s argument was more fully defined in the recent picketing.
Pilots believe that the immunized alliances are virtual mergers and as such:
- create a real threat of US job outsourcing;
- are anti-competitive;
- circumvent existing restrictions on foreign control and influence over US air carriers.
There is no doubt each of these is a fact. Whether there is any causal connection is quite a different point.
We would not presume to offer a definitive answer to the ultimate validity of the union’s claims, but there is certainly plenty of room for doubt. The effect and power of alliances has been the subject of debate for over a decade and that has done little to silence either proponents or detractors. The issue is fraught with political and economic consequences and the discussion has encompassed concerns far removed from the simple question of airline operations.
Nonetheless, we have done considerable research in the past that has specifically examined some of the points raised by the union. In general, we have found those arguments to be unsubstantiated, or at best, to overlook a number of important features which offset any disadvantages.
The airline world has changed
Airlines are very different creatures today. There can be little doubt that jobs are being done differently than ten years ago. Swissair, for example, split into numerous stand-alone companies during the 1990s (Gate Gourmet for catering, Swissport for ground service, etc), with the airline then becoming just a client of these creations and with their employees having a far more tenuous link to the original parent. This kind of “internal outsourcing” began long before alliances ever walked the earth.
The trend towards technical services being outsourced has also seen a significant up-tick in the last decade, as carriers have sought to rationalize fixed costs. However, this is a trend seen across many industries as companies generally focus primarily on core operations. While it is true that for many decades maintenance was seen as a core airline strength, that has become less and less the case.
The real question then is whether or not alliance links per se have exacerbated this trend and can be held culpable for job loss. The evidence simply does not support this. While many ground and support staff have been eliminated, much of this is due to the global move to offshore tasks like reservations and customer service. The fact that one is now connected to Bangalore rather than Boston when calling, has very little to do with alliance membership. Furthermore, the rapid growth of online technology has made many of those (low paid) jobs, regardless of their physical location, unnecessary.
Airport staff are fewer not due to British Airways or Lufthansa, but because fewer passengers need staff intervention for ordinary transactions. And while fewer US managers are deployed to operations in London or Paris, the same is true for British Airways and Air France in the US. Perhaps we need a bit more information on just how red-blooded Americans are being replaced by a tidal wave of foreign staff?
The anti-competitive argument
Throughout this year, The Centre has looked at the fares charged on immunized routes and those available on the New York-London non-immunized, AA/BA sector. What we found was that while the immunized fares tended to be identical for the carriers operating as alliance partners, their relative cost was no more, and sometimes less, than the comparable New York-London “free-market”.
Similarly, looking at the multiple fares available from St. Louis to London, over different routings and with different participating alliances, we found that competitive pricing was alive and well. One of the conclusions reached was that despite the fact that there are only three alliances, these grouping encompass most of the world’s major carriers and, as such, find themselves unable (and probably unwilling) to price in non-competitive ways. Between STL and LHR, there is little possibility to gouge customers when so many alternatives (12) were found to exist.
Furthermore, there are fledgling efforts at long-haul, low-cost travel. Any attempt by an airline or alliance to overcharge would invite the immediate entry of alternative carriers.
A way around
This may be the one tenet that has some validity, not only in the US but globally. We have long observed that airlines, while seeming to be the most international of companies, are often the most parochial in their ownership and operation. The laws and regulations that exist were constructed in a different environment and have overstayed their welcome, although many like to cling to them as if they were holy writ.
Alliances were born of carrier frustration over the myriad regulations that made real integration possible. While we allow foreign ownership of financial interests and major industrial means of production, airlines (especially in the US) continue to believe that foreign ownership is the first step to national collapse and ruin.
So yes, absent the political will to move airline consolidation into the 21st century, carriers are looking for alternatives that work. And they will continue to do so despite the efforts of some to bury the initiative. The current interest in JAL by both Delta and American shows that it is being the ownee, rather than the owner, that causes concern. This seems fundamentally lacking in consistency.
The more amazing aspect is that the pilots refuse to acknowledge the benefits that are the flip side of alliances. Take the following example.
American is absent from the long-haul Australian route and the current glut of capacity makes it unlikely that the carrier would be willing to enter that fray. It has been there before with its own metal and got badly burnt.
Nonetheless, the possibility to book AA to Sydney (and elsewhere) exists, reinforcing loyalty and providing American with a portion of the Qantas flight’s revenue. Furthermore, passengers from interior US points are automatically routed on AA flights to the QF gateway. Absent the alliance codeshares, those incentives and opportunities would be gone and jobs actually might be lost as those tasks at AA that are dependent on the exchange would no longer be necessary. This is a bad thing how?
This same injection of business into American's domestic route exists wherever a foreign partner touches only one or two US gateways. American consistently picks up the very valuable on-carriage.
Lies and statistics: 36% international growth since 1999
Finally, it would be well worthwhile for the APA's pilots to look a little more closely at the numbers. It is true that the US industry, as well as many airlines everywhere, have had to cope with contraction in the past decade. However, the implication that this is due to alliances is patently absurd.
The first big reduction of service followed 9/11 and had nothing to do with alliance growth. As a matter of fact, for some carriers, alliance partners provided the only way of remaining in markets where their own metal was a losing proposition. Subsequently, we have seen bankruptcies, cost cutting and all manner of operational rationalization that is devoid of ANY alliance piece.
American no longer operates its own equipment on many routes up and down the west coast but rather codeshares with Alaska Airlines, again an arrangement with no alliance ties. The simple fact is that the market was overserved and AA was not a viable player with its own metal. The alternative: withdraw entirely.
One statistic to finish with. It may be misleading, but American Airlines' international traffic (RPMs) has increased by well over a third in the past ten years. From 35.7 billion RPMs in 1999, the carrier reported 48.4 billion RPMs last year. Right or wrong, this offers a very different impression from the pilots'.