The advent of deregulation of the airline industry saw a rise in a sudden confrontation between labor and management in many firms, resulting in a labor crisis. For the first time in nearly four decades of harmony, contentions were replete between labor and management. Adding to the plight of legacy carriers such as American Airlines was the intense competition from non-unionized new entrants. The entry of non-unionized players forced legacy carriers to refocus on minimizing their operational costs while maximizing labor productivity, which was such a delicate balance as revealed by the former CEO of American Airlines, Don Carty. The following discussion is based on a video in which Carty, now the CEO of Dell, Inc., expresses the frustration that executives face in a union environment, especially with regard to containing labor costs.
Based on the fact that labor costs constitute part of a cost structure that is higher than revenue at American Airlines, there are other preparations that the company can make prior to going into negotiations with labor unions. The airline can decide to reintroduce two-tier wages concept that it pioneered in the 1980s. Using the two-tier wages concept, the airline would retain the compensation and benefits package for its current workforce while hiring new employees at lower wage rates. Such a strategy, if implemented, would help the airline to reduce cost per available seat mile(ASM), which will in turn help to improve after-tax profit margins for American Airlines for some time (Lynagh et al., 2013). If the company can put such an offer on the table, along with profit sharing during periods when the company is performing well, employees will be assured of large bonuses that may consider accepting. The company will also enjoy low-cost expansion over the period that the agreement will be in effect, and that can enable it to get back on truck and avoid bankruptcy (Dempsey, 2012). Alternatively, the company may be considering wages and work rule concessions, such as introducing a variable earnings plan in which it would tie wages to the performance of the company (Dempsey, 2012). Such a move may just do the company the good of motivating its workforce as it starts going an extra mile on behalf of the company. The company will in turn create a new source of capital, though unsecured and without any interest, that it can plough back to improve its processes. The only challenge is that when profitability cannot materialize due to macroeconomic forces beyond the company's control, the morale is likely to become low and the labor-management acrimony may grow.
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Apart from the essential preparations taken prior to negotiations, Mr. Carty also talked of the involvement of the federal government, which can be through various agencies, including the Department of Labor, National Labor Relations Board(NLRB), National Mediation Board(NMB), and Federal Mediation and Conciliation Services(FMCS) (US Department of Labor, n.d.). The Department of Labor, through its Office of Labor-Management Standards, administers and enforces most of the provisions of Labor-Management Reporting and Disclosure Act (LMRDA) of 1959. Specific provisions of LMRDA that may be of concern here include the "bill of rights" for union members and the requirements for reporting and disclosure by employers and surety companies when they engage in negotiations. NLRB finds its primary role in the private sector operated by American Airlines and where the agency deals with administering the provisions of National Labor Relations Act regarding union representation for employees. Also, NLRB investigates and remedies unfair labor practices by employers in the private sector. Finally, FMCS is very critical in the negotiation process in mediating collective bargaining negotiations and assisting organizations to develop improved workplace negotiations.
While it is clear from Mr. Carty's comments that labor costs is a real concern in American Airline's cost structure, unions that represent the employees of the company would not want to see labor costs being cut. The most obvious response that the unions would provide in response to Carty's comments would be that cutting labor costs would violate the rights of members. The unions would argue that cutting labor costs through reduced wages would violate the minimum wage law and deny members access to modest employment terms. Additionally, the unions would consider layoffs as an act against Equal Employment Opportunities(EEO) provisions and would thus be hard to implement without violating the rights of members. Given the outcomes anticipated by the unions with regard to reducing labor costs, the unions would be objected to the suggestions to cut labor costs at the American Airlines.
From the preceding discussion, it is clear that labor unions are presenting the airline industry with difficulty in containing operational costs and literally driving airlines into bankruptcy. In particular, the comments by Mr. Carty shows that executives of airlines are facing frustration from unions when they have to offset some operational costs in the face of intense of competition from non-unionized new entrants. However, there are many other options that airline companies can explore to mitigate the frustration from unionized employees. Such options include profit sharing and stock options among other wage and work concessions. Most importantly, airlines should be transparent about their plight and explore all options to mitigate bankruptcy with the unions at the negotiation table for rbe benefit of the firms and the employees alike.
References
Dempsey, S. P. (2012). U. S. Airline Labor and Employment Law . McGill University Institute of Air & Space Law. Retrieved 23 Jun 2018, from https://www.mcgill.ca/iasl/files/iasl/aspl613_paul_dempsey_labor-employment_law_2012.pdf
Lynagh, C., Pinkus, D., Ralph, D., & Sutcliff, M. (2013). The American Airlines Company: Bankruptcy and Reorganization . Retrieved 23 Jun 2018, from https://turnaround.org/cmaextras/Carl-Marks-Competition-American-Airlines.pdf
US Department of Labor. Labor Relations. Dol.gov. Retrieved 23 Jun 2018, from https://www.dol.gov/general/topic/labor-relations
