Attention All Passengers (15 page)

The View from the Top: Management Blues

Of course, the FAAC needed an airline financial analyst and that fell to Dan McKenzie. Six months after the FAAC adjourned, I met with McKenzie in his office overlooking the Chicago skyline, just a few blocks from the world headquarters of United/Continental. He stressed that he has nothing but love and respect for labor leaders. But he asserted that employee groups put too much emphasis on seniority: “I expect my one-year captain to have the same ability as a twelve-year captain. The difference between a one-year surgeon and a twelve-year surgeon is that the twelve-year surgeon is more productive and can perform surgery in three hours instead of four hours. But that's not the case with pilots. It's a fatal legacy issue—they need to get this.”

McKenzie and I launched into a rambling conversation about work and compensation and the nature of fairness. I posited that an employee at any company who remains loyal over time and works hard and plays by the rules deserves to be rewarded periodically, no? Aren't raises the American way? “That is not the American way,” McKenzie replied. “The American way is a meritocracy.” While he does recognize the need for pay to keep pace with inflation, he added, “I don't believe in job protection. And I've lost my job twice, as painful as it was.”

However, even Wall Street recognizes that the labor well is running dry; analyst Helane Becker acknowledges, “Our view is the airlines have probably gotten as much as they can get from their employees.” She notes that one workforce group at American Airlines was earning 1998 wages in 2011, and adds, “You can't continue to beat up your employees.” And there's another factor at play. Low-cost airlines—particularly those that started up in the last decade—have an inherent labor advantage since they're not dealing with a workforce that has been in existence since, say, 1924 (Delta) or 1926 (United) or 1929 (American). However, the challenge for low-cost carriers such as Frontier (1994) and JetBlue (2000) and Virgin America (2007) is that as they mature, their employees mature as well; that's why Becker points out, “You can't fire your people every five years.”

One management solution was devised when Bob Crandall headed up American Airlines: keep existing pay scales in place, but pay newer employees at a lower level. At the risk of being tossed out of his Florida winter home, I asked Crandall point-blank: You're the guy credited with introducing the B-scale, so aren't you responsible for what's happened with airline outsourcing? He replied: “No. All of the people in that second tier would eventually get, not to the high point, but well into the first tier. And they were never hired at the sort of outsourcing rates that people are hired today. They were simply hired at the same rates as Southwest and the start-up airlines were paying at the time. The whole rationale was we're going to create a new airline and be competitive with the new guys, but we'll keep the old airline and the new airline. And we'll protect the old airline people because the new airline people will allow us to lower our costs.” One rank-and-file American employee with nearly thirty years of experience agrees: “Crandall was a son of a gun, but he was our son of a gun. He did close the gap with two-tier wages. It took a while, but he kept his word.”

The industry's notorious work slowdowns also fuel management anger. In the spring of 2000, United trailed all other domestic carriers with a 57 percent on-time arrival rate, which was due to both pilots and mechanics refusing to work overtime after their contracts expired. (We experienced a similar situation at the Pan Am Shuttle with unhappy pilots, who one day began declaring all departures scheduled for thirty minutes past the hour as having pushed at thirty-six minutes past, knowing that internally anything more than five minutes was a delay. Our solution in Operations was to simply “mishear” their departure calls and record them all as thirty-five minutes past, which did not earn us much love from the pilots.)

But it's not exclusively about pay. Swelbar may be speaking for all airline boards when he says that labor contracts and work rules have caused the industry to employ more people than it has needed, thereby creating higher cost structures.

Current airline executives won't speak at length about their labor woes. But former execs will, particularly when it comes to the most expensive workgroup—pilots. Michael Levine says pilot unions are rabidly fixated on two topics: allowing their members to bid for their monthly flying time by seniority and tying pay to the size and type of aircraft flown, so more experienced crews fly the largest jets. Levine says, “These are things that the pilots union fought for in 1934, and they're not going to let go of. There's no reason why you should pay a pilot by how many seats are strapped to his butt. There's no reason why a senior pilot shouldn't be able to fly the shuttle and make whatever money he's supposed to make.”

Bob Crandall and others believe Southwest's unions have behaved differently, by increasing their efficiency in exchange for more compensation. Then why, I asked, don't other airlines emulate Southwest's policies? “The [other] unions won't take it,” said Crandall. “The unions at the [legacy] airlines were all created after World War II. And they got used to a certain set of conditions and they wouldn't give up those conditions. But they look at how much Southwest is making and they say, that's how much we want to make but we don't want to do that much work.”

Another former executive who is quite blunt about labor relations—even going so far as referring to some union representatives as “Sky Nazis”—is former Continental CEO Gordon Bethune. He maintains that his contentious relationship with the Association of Flight Attendants was due to inflexibility on the union's part, in not being amenable to rule changes that would help the airline. He also says, “Airlines with the worst consumer records have the worst labor records.”

A retired flight attendant told me that her old colleagues are all unhappy—but she warned that you need to sift through what is legitimate and what is whining. In fact, I've spoken to former airline employees who are as bitter toward their former unions as the airline executives. One is R. Bruce Silverthorn, who spent decades in the airlines as a ramp worker and customer service agent, beginning at Mohawk Airlines in 1963 and continuing with Eastern and Delta. His diverse experience on the ramp and in customer service—as both a union and nonunion employee—gives him a unique perspective on management-labor struggles. I met him for beers at a bar in Buffalo, and soon realized it would probably be best to slightly edit his more colorful quotes (Silverthorn cannot resist using ten-letter and twelve-letter descriptions when referencing Frank Lorenzo, the notorious corporate raider who ran Eastern into the ground).

“I don't dislike unions,” said Silverthorn. “But I think Eastern's unions fucked up. They sold us down the river. . . . The unions are as much to blame as Lorenzo.” In his view, union greed helped sink the company, even as labor officials protected “deadwood” employees who did not produce. Even so, he believes outsourcing has made things worse for customers: “Before outsourcing there was a pride. Now they don't give a shit.”

The View from Down Under

When I spoke to Ralph Nader about the dramatic influx in maintenance outsourcing, the first thing he asked was, “Why are the unions allowing this?” Perhaps because they can't stop it. They've expended quite a bit of energy in recent decades fighting airline executives, bankruptcy judges, and even Congress, and in some ways the big unions are exhausted and even spent.

As one mechanic said to me about airline management: “They're so worried about the shareholders. But it's like a marriage—you have to take care of your employees. If you don't, someone else will. If you treated your people right, there wouldn't be a need for unions.”

Battling deep-pocketed airline CEOs has taken its toll. Among the rank and file, for example, it's hard to underestimate the industry's vitriol for Frank Lorenzo, the former head of Texas International who founded New York Air and also acquired Frontier and PeoplExpress. Even encapsulating his reign isn't easy: he also took over both Continental and Eastern, drove both major carriers into bankruptcy, oversaw one of the industry's most bitter strikes, and pled guilty to safety violations at Eastern. In 1989, Barbara Walters dubbed him “probably the most hated man in America.” And even William F. Buckley commented: “As a businessman, Frank Lorenzo gives capitalism a bad name.”

When Lorenzo attempted to reenter the business in 1993 by launching a new company with the possibly tongue-in-cheek moniker of “Friendship Airlines,” labor unions and even Congress howled. Former FAA administrator Randy Babbitt, then president of the Air Line Pilots Association, stated: “Too much is already known about his questionable business practices to allow him to avoid disclosure in this case.” The DOT took the extraordinary step of denying Lorenzo's bid, citing the FAA's repeated involvement in resolving safety questions at Eastern from 1987 through 1990.

Just coming up short to Lorenzo on the judges' cards in “Most Hated Airline Executive” polling is corporate raider Carl Icahn, one of the famed 1980s barbarians at the gate and the engineer of an infamous hostile takeover of TWA. Despite concessions from TWA's unions, Icahn apparently sought further givebacks while downsizing the airline and selling off routes.

By 2001 it all came apart and TWA entered bankruptcy for the third time, with its assets sold to American. Employees considered the sale bittersweet because although many now had jobs at American, pre-merger plans for expansion of TWA's maintenance base in Kansas City never materialized, and the seniority integration meant thirty-year TWA veterans were being treated as new hires. TWA's labor woes live on long after the airline folded, with the pilots unions still feuding.

Pat Friend, the longtime president of the Association of Flight Attendants, maintains there's a strong link between the string of airline bankruptcies and labor relations. Thanks to bankruptcy judges, management got a taste of not having to bargain, and now many companies don't want to come to the bargaining table anymore.
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Friend also maintains that the National Mediation Board members are not doing their jobs; six months after flight attendants at Delta-Northwest rejected the AFA, the union filed a motion but the mediation board still had not responded.

Friend asserts that the real changes in the industry took place in the late 1980s and early 1990s, when innovations such as self-ticketing kiosks and checking in for flights at home took hold. Many industry insiders believe such programs were always about the reduction of staff, not the convenience of passengers.
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On the flip side, for union leaders it's about employees making a decent living. Today Robert Roach is the general vice president of transportation for the International Association of Machinists, but he began his airline career on the ramp at JFK in New York for TWA. With all he has seen both before and after deregulation, I asked him if labor conditions will only worsen in the long term. “Yes,” he replied. “Unless something changes. Workers want to make a decent wage and go home and focus on their families. But [executives] are cannibalizing the industry.”

Meanwhile, Roach said no Northwest employees were laid off when the airline was acquired by Delta. But I pointed out that Northwest employees in the IAM were laid off
prior
to their company's merger with Delta; in smaller “spoke” cities longtime employees were given two weeks' notice and asked to train their outsourced replacements! A former Northwest employee told me: “They voted all the spoke cities out of jobs. Including one guy who was three months from turning fifty-five and retiring.” Northwest later issued its infamous “garbage memo” to laid-off employees, recommending they rummage through used clothing bins and Dumpsters to make ends meet.

In addition to downsizing and outsourcing, Roach points out that Delta's “new thing” is being carefully watched throughout the industry. The airline's customer service positions are increasingly being filled with “ready reserve” employees who are severely restricted in the number of hours they work and receive neither health coverage nor pensions and only “limited travel privileges.” They perform a variety of cross-training functions, so the requirements include driving company vehicles, typing, and “lifting up to 70 lbs. repetitiously.” According to Delta's site, the pay is $9.07 nationwide (and slightly higher at three large airports), but the ready reserve force is not on track for promotions. Basically they make themselves available on certain days and then—like substitute teachers—wait for a call that may or may not come.

However, at least those workers are employees of Delta. Increasingly, the airline industry turns to outsourced firms to fill frontline customer service jobs. As Roach explains, “They have people dress up in company uniforms. I've spoken to workers who don't know what they're doing.”

I asked Roach which domestic airlines, if any, enjoy the best reputation among labor leaders, and he immediately responded with Southwest and Continental. However, Continental is being melded into United, so Roach acknowledged that “the jury is still out” on whether good relations with CEO Jeffery Smisek will continue at the newly merged corporation.

As for Southwest, it's widely recognized that the company maintains the best labor relations among all U.S. airlines. (It also is very heavily unionized, a fact many observers find surprising considering Southwest's low-cost image.) Besides being the only consistently profitable carrier in America for the last three decades, Southwest ranked twelfth and was the only domestic airline to crack the top fifty in
Fortune
magazine's 2010 list of the World's Most Admired Companies (Singapore Airlines ranked twenty-seventh).