To fix bloated costs, the financially ailing airline industry prescribed itself a familiar treatment in recent years: Slash wages and benefits. Now, with the limitations of that...
To fix bloated costs, the financially ailing airline industry prescribed itself a familiar treatment in recent years: Slash wages and benefits.
Now, with the limitations of that approach apparent as large carriers continue to lose money, experts say the cure lies in operational improvements that enhance work force productivity.
Consider Southwest Airlines. Its pilots, flight attendants and mechanics are among the highest paid in the industry, yet the Dallas-based company delivers steady profits while many competitors that spend less on labor consistently lose money.
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“Our low costs aren’t achieved by paying lower wages,” said Tammy Romo, Southwest treasurer. It’s “high productivity.”
Seattle-based Alaska Air Group is another carrier with relatively well-paid and productive workers. While currently negotiating with workers to make them more efficient, the carrier’s cumulative quarterly profits have exceeded its cumulative quarterly losses since the start of 2003 — a statistic that sets it apart from most large carriers.
To drive home the point another way, Eclat Consulting vice president John Donnelly noted that both ATA Holdings and America West Holdings, which have some of the cheapest labor in the industry, lost money in the third quarter of 2004, the most recent period for which carriers have reported earnings.
“It’s not just the wage that matters,” Donnelly said.
To boost the efficiency of workers and planes, experts say, carriers need to increase the number of hours their aircraft spend aloft; expand workers’ responsibilities to ease the flow of passengers, baggage and planes; and outsource more maintenance work to third parties that can do it for less money.
One obstacle for airline executives has been getting employees to accept changes to union work rules and procedures.
“Taking down some of these walls is challenging, particularly in light of the fact that it is being accompanied in most cases with wage decreases,” said Michael Allen, of Back Aviation Solutions of New Haven, Conn. “But if you increase productivity, you don’t need to have wages come down as dramatically.”
Analysts said airlines that seek to further shrink employee compensation without significantly improving operational efficiency also run the risk of worsening the morale of their workers.
The danger in this was highlighted over the Christmas holiday, when staffing problems at US Airways resulted in a 10,000- bag pileup in Philadelphia.
It was a public-relations disaster for the bankrupt carrier, which says it needs more concessions from baggage handlers — many of whom apparently called in sick on Christmas — and other workers in order to avoid liquidation. Similarly, flight attendants at bankrupt UAL’s United Airlines recently threatened strikes if the company imposes additional salary and benefit cuts.
The focus on labor costs remained intense in the first week of the new year. On Thursday, United Airlines’ pilots ratified a new cost-cutting contract, while Continental Airlines said it needed $500 million in wage and benefits cuts to avoid a liquidity crisis by the end of next month.
Airlines have largely been too slow in overhauling route networks, schedules and procedures, said Robert Mann, a New York-based airline consultant. “This all comes down to scheduling airplanes efficiently,” he said. “If you can’t do that, you can’t schedule anything else efficiently.”