Introduction
American Airline is a legacy airline, with a household name, that employed thousands, and demanded a dominate presence among other industry player. Labor unions play a critical role in the in the airline industry, and about half of all workers in the air transportation industry are unionized (Greenspun, 2010). This paper will provide a background on the current state of union relations in the airlines industry in the United States. It will then explain why Allied Association would risk the future of American Airlines with union demands and how this could affect other airline companies. Lastly, it will provide a brief summary.
Current State of Union Relations in the Airlines Industry
Apart from Delta, all major US carriers are
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highly unionized. Labor costs are vital in the airline industry, customarily being the largest cost. Labor’s portion of total expenses peaked at a modern-day high of 37% in 2002, but had fallen to under 25% in 2006 with a large section going to wage allowances and sharply rising fuel costs (Nov, 2011). The National Labor Relations Act (NLRA) or Wagner Act limits the way employers react to employees in the private sector that create labor unions, engage in collective bargaining, and take part in strikes and other forms of concerted activity in support of their demands (September, 2011). The Railway Labor Act (RLA) is a United States federal law that governs labor relations in the railway and airline industries (September, 2010). Apart from several public or quasi-public industries, no other large US industry has union density approaching that of airlines (August, 2012). Wages and salaries are predetermined by completive labor markets. American Airlines and US Airway entered in a merger where three main labor unions were key drivers in forging labor agreements that detailed how they would be treated (Jean, 2013). The merger prevented major layoffs due to decreased route overlap (Jean, 2013). It also preserved local jobs in Fort Worth Texas and is expected employed 94, 000 (Jean 2013). Air industry markets are not immune to labor market but they do differ from the normal business. Succeeding losses, as seen in the mid-1990s and again in recent years, unions afford contract concessions, sometimes under the threat of or following bankruptcy (Jean, 2013). Usually strikes are rare due to how exorbitant shuts down are. However, the threat of a strike gives unions the ability to capture wage gains for their members. Union density in the industry remains high following release due to this strong bargaining power that makes organizing attractive to workers. In order to limit the size of wage settlement a business must pay is indicative of ability to pay. Why would the Allied Pilots Association (APA) Risk the Future?
Union bargaining power in the airline industry is significant because of the strike danger. A strike by a carrier’s pilots, flight attendants, mechanics, or possibly other worker groups, can shut down all flight operations. Unlike consumer durable goods, transport services cannot be stored or shifted in time. Federal aviation regulations, on the other hand, require an airline to operate with pilots who have specific training for and experience at that airline (Greenspun, 2010).
The APA has been adamant that the best way to have control over their own destiny is to put the rejection of collective bargaining process behind them and secure the claim. This will make APA the single largest stakeholder of American Airlines (Jean, 2012). As the airline tends to operate with fairly small reserves, paying out 115 percent of profits results in the airline seeking Chapter 11 bankruptcy protection and a federal judge adjusts the pilot union contract so that the pilots are back to collecting 95 percent of the new estimated profit figure (Nov, 2011). This cycle of union contract negotiation and Chapter 11 bankruptcy is one reason that the airlines lease rather than own airplanes (Nov,
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2011). The mindset is that by having the main assets in the hands of a third party, it will produce a reasonably efficient way of allocating profits. The leasing companies get paid, the airline executives get paid, the unionized workers get paid as much as possible, lawyers and Wall Street banks get fees from every bankruptcy, and the public shareholders get 5 cents back for each dollar that they invested (Greenspun, 2010). Where Are We Today Considering Recent Updates The merger of American Airlines and US Airways was unusual when proposed because it seemed to have the support of all the major employee unions involved but one its major union is threatening to strike (Martin, 2014).
The machinist, mechanics, and fleet service have been trying to negotiate a new contract for over two years (Martin, 2014). Despite the changes the airline companies have undergone there are still challenges within the industry.
Several factors drive the recent culture of mergers within the industry; rising fuel costs, a labor-relations culture that originated from government regulation of U.S. airlines, a reactive instead of proactive strategic management business model, a high risk of substitute products as a strategy for growth that dominate the air industry (Martin, 2014). After years of struggling to stay proactive in a shifting market, because of labor demands, a new bankruptcy movement came over the industry putting other U.S airlines in jeopardy. In addition to American Airlines, several other airlines filed Chapter 11. The upsets labor difficulties have on fare and competition is the chief reason for the formation. Accordingly, as market circumstances change organization will more than likely reassess and modify priorities and alliance
expectations. Are Changes Needed in Labor Law Employees in a business without the leveraging power put them at a disadvantage and this is what a union brings to the table. The employee as an individual has zero power to fight for rights. Unions’ provide workers with a collective force with increased bargaining power. Change is required that alter the concept that labor unions present a history of a long and acrimonious struggle of employees as underdogs against employers as their abusive controllers. When in reality the struggle is between workers who want to create a union monopoly and other workers who wish to opt out is the real problem. There is a bias in favor of unions and against independent workers and employers. Labor unions are hurting companies by forcing them to tighten their belts while union workers have not impact on their pay or benefits even if it pushes the business into bankruptcy (DeMaura, 2012). Strikes have forced organization to agree with deals that were not economically plausible. Unions prohibit employees from representing themselves on the terms and conditions of their employment and other matters that come under "the scope of collective bargaining." Employers are prohibited to deal directly with individual workers. Individual workers have no voice. There needs to be more freedom as to how employers are allowed to interact with unionized employees. The main principle of exclusive representation, as provided for in the NLRA, requires an update. Laborers should be free on an individual basis to hire a union to represent them or not represent them. By excluding more-efficient nonunion firms from federal work, Davis-Bacon pushes up the costs of all federally financed projects. The Davis-Bacon rules should vanish, because they serve no interest other than protecting unionized construction workers from open competition. Labor-management cooperation is important for the ability of American businesses and workers to compete in the global marketplace. Workers who want to have a voice in company decision-making without going through a union should be free to do so. The current ban on cooperation, as strengthened by court decisions, makes no economic sense. Greater workplace cooperation would increase workplace productivity, and productivity is the ultimate determinant of U.S. wages. So repealing section 8(a)2 of the NLRA would be a win for businesses and workers alike (Hugo, 2014). The Labor-Management Reporting and Disclosure Act of 1959 required unions to openly divulge basic financial information so that their members can see how their dues are being spent. However, the Act was never very effective, as unions stashed different piles of money into a variety of trust funds in undisclosed locations. Summary In bankruptcy, labor faces choices ranging from bad to worse (Jean, 2012). Interaction between labor laws and FAA regulations results in pilot unions having a strong claim on large portion of an airline's profits. It is unfair that an investor in a unionized U.S. airline should not expect to see a return on that investment and, indeed, should expect an eventual Chapter 11 bankruptcy filing to wipe out his or her investment altogether (Greenspun, 2010). An airline whose business is slightly down will face increased labor costs precisely at the time that it needs to cut its costs in order to survive. This paper discussed the current state of union relations in the airlines industry in the United States. It then explains why Allied Association would risk the future of American Airlines with union demands and how this could affect other airline companies.
In the Travel Pulse article "Airlines Leaving Us Little Choice – Like A Monopoly," posted by Rich Thomaselli, the practice of monopolization is observed in the airline industry. The author criticizes large airlines on their growth that has led to at “93 of the top 100 [airports], one or two airlines controlling a majority of the seats” (Thomaselli). The scornful article was written after recent events that have caused the Department of Justice and five States to sue two of the biggest U.S.
Tensions between union supporters and management began mounting in the years preceding the strike. In April of 1994, the International Union led a three-week strike against major tracking companies in the freight hauling industry in attempts to stop management from creating $9 per hour part-time positions. This would only foreshadow battles to come between management and union. Later, in 1995, teamsters mounted an unprecedented national union campaign in attempts to defeat the labor-management “cooperation” scheme that UPS management tried to establish in order to weaken the union before contract talks (Witt, Wilson). This strike was distinguished from other strikes of recent years in that it was an offensive strike, not a defensive one. It was a struggle in which the union was prepared, fought over issues which it defined, and one which relied overwhelmingly on the efforts of the members themselves (http://www.igc.org/dbacon/Strikes/07ups.htm).
The PATCO strike began on August 3, 1981 with over 13,000 people walking out. This "illegal" act was met with a quick response from President Ronald Reagan (Sconberger p 1). Reagan told the strikers, "Either return to work within 48 hours or be fired from government service for breaking the 'oath of office' not to strike (Sconberger, special report, p. 12). While roughly 1,200 workers returned to work, another 12,000 remained on strike and were promptly fired (Sconberger p 1). This caused a serious safety problem for the airlines, inconveniences for many Americans, and lost profits for many businesses. Controllers needed to be replaced and it needed to be done fast. As a result, their were many questions on the safety of airlines. In order to understand the effects of the strike on the safety of airlines, an understanding of the PATCO movement is necessary.
Southwest Airlines has come from an underdog to being one of the best airlines in the industry. This reputation translates from its strategic management of resources. The Co-founder and former CEO, Herb Kelleher, established a unique corporate culture that leads to high customer satisfaction, employees’ morale, and one of the most profitable airlines in the industry (Jackson et al., 2012). The corporate culture concentrates on empowerment the workforce. It shows through Southwest Airlines core values that “happy employees lead to happy customers, which create happy shareholders” (Jackson et al., 2012). Since its first grand opening in 1971, Southwest Airlines has shown steady growth, and now carries more passengers than any other low-cost carrier in the world (Wharton, 2010). To expand the business operations, Southwest Airlines took over AirTran in 2010 as a strategy to gain more market share for the Southeast region and international flights. However, the acquisition of AirTran brought upcoming challenges both internally and externally for Southwest Airlines. In this case analysis, the objectives are focusing on the change process post the merger with AirTran, and evaluating alternatives to address the impacts of the merger.
Magic Carpet Airlines (MCA) is in the midst of a collective bargaining negotiation with a union and this paper will present the case from the union’s side of the bargaining table. First, one must understand the meaning of collective bargaining negotiations; this is when both sides of the negotiations discuss wages and others perks and then come to an amicable agreement. Collective bargaining is not a simple negotiation process, because the employer and the union usually meet on more than one occasion, due to the fact that union negotiators must keep their members informed during the process and they must also present any offers to their constituents for a yes or no vote to accept said terms being offered by the employer. The textbook offered the Magic Carpet collective bargaining as a case study and students were asked to analyze the issues being negotiated, determine ways
The Airline Industry is a fascinating market. It has been one of the few industries to reach astounding milestones. For example, over 200 airlines have gone out of business since deregulation occurred in 1978. Currently, more than 50% of the airlines in the industry are operating under Chapter 11 regulations. Since 9/11, four of the six large carriers have filed for and are currently under bankruptcy court protection. Since 9/11 the industry has lost over $30 billion dollars, and this loss continues to increase. Despite the fact that the airline industry is in a state of despair, JetBlue has become the golden example, a glimpse of what the industry could be.
The rise of capitalism as the dominant economic system in the United States made the rise of unions inevitable; given the natural division between those with capital that control the means of production, and labor, who is treated simply as another factor of production (Hodson & Sullivan, 2008). While labor unions have made significant improvements to the working environment, with the regulation of safety, environment, labor and wage; labor unions have also contributed to the decline of U.S. dominance in industries like steel, automotive, education and airlines. In today’s global economy, can labor unions continue to be a force for good in the United States, or have they become harmful institutions?
"Problems" in the airline industry have not risen due to too much competition within the industry. To the contrary, Washington regulators should turn the industry loose in any more ways that it can. Lowering restrictions to enter the market place, emphasizing private ownership of aviation matters, and encouraging open and free competition within the scope of anti-trust law should be the goals of the Clinton Administration. Instead of heading towards re-regulation, Washington should get out of the airline business for good.
Many elements of Delta Airlines are described in detail, within this paper. There is a breakdown of the external and internal factors, using external and internal analysis. Porter’s Five forces are used to create the external analysis, and the key factors for Delta are power of buyers, and rivalry. Delta’s competitive advantages are identified as customer service, sustainability, brand image, strong strategic alliances, and corporate travel. Delta’s main issues are the low expansion in international markets, continuous changing of incentive program, and glitches within technology. Delta should expand more into the Chinese and African markets in order to gain market share within the airline industry.
The soft factors can make or break a successful change process, since new structures and strategies are difficult to build upon inappropriate cultures and values. These problems often come up in the dissatisfying results of spectacular mega-mergers. The lack of success and synergies in such mergers is often based in a clash of completely different cultures, values, and styles, which make it difficult to establish effective common systems and structuresBased on the case study, extensive research and annual reports of AT&T the writer has mapped AT&T in the different domains. AT&T should strive to attain a perfect circle as close to the centre as possible, which indicates total synergy, order and equilibrium. Where the circle is skewed drastic change is needed as it moves closer to the outer ring of chaos:
As for most union disputes, the results of a negotiation usually will end in one way. For Trans World Airlines (TWA), there was never happy moment. Although,TWA reigned as one of the largest airlines if it's time, it wasn't the most successful. Established in 1926, the airline experienced a multitude of changes that would deem the company to be unsuccessful. Later on in the companies history, a man named Carl Icahn invested $300 million into the company, mainly to have a control of the company. His goal was to lower the cost of labor by receiving pay concessions, which would increase employee productivity. This agreement would give pilots a 30% concession ($100 million) and a 15% concession ($50 million) for machinists. With these concessions,
This was a sad day for everyone in both the immediate and extended “Delta family,” a day perhaps as sad in its own way as the death of Mr. Woolman almost 40 years before. The sadness mixes with fear by employees and retirees, their families, stockholders, customers, vendors, taxpayers, governments and all others among the tens of thousands impacted by the bankruptcy. Leadership decisions by Delta’s Board and CEO’s over a long period of years laid the foundation for Delta to be in a position where the factors would have a large enough impact to result in bankruptcy. By promoting Ron Allen to CEO, primarily because he had moved up the chairs in the company through Beeb’s efforts, the Board showed their lack of awareness of the need for a strategist to deal with the fundamental changes taking place in the airline industry. Then the Board brought in Leo Mullin and gave him free rein for 6 ½ years to turn a cash rich company into one in such poor shape financially that his successor had to turn to expensive sources of money to keep the company
Before we discuss government intervention and its affect on an industry’s competition we must first seek to understand the five forces framework. The theory, discussed in 1979 by Micheal Porter seeks to evaluate the attractiveness of an industry. Throughout this essay I will explore the theory and then relate government action and its well-documented affects on the airline industry.
With only a few large companies across the globe (Boeing, MD, and Airbus), the commercial aircraft industry essentially exhibits the qualities of an oligopolistic competition with intense rivalry. Here is an analysis of competition in the commercial aircraft business using Porter’s Five Forces.
When an airline does not have a sustainable competitive advantage, it does not have any properties of differences from there competitor and turns to a dangerous price war. The sustainable ...