Do Pilot Unions Have a PR Problem?

Southwest pilots walk the picket line

Last week, the pilots of Southwest Airlines took to the streets outside of the airline's headquarters in Dallas to protest the lack of progress in their current negotiations. The union is not on strike, or even close to it, but is engaged in what is known as "informational picketing" to get their message out. Southwest Airlines' management and the pilots' union have been in negotiations since the pilots' contract became amendable in August of 2012.

If you'll recall, airlines are organized under the Railway Labor Act (RLA). Under the RLA, labor contracts never expire but become "amendable". Labor unions continue to work under the terms of the preceding contract until a new contract is negotiated.

The pilots' union at Southwest (SWAPA) contends that the airline has been dragging its feet in negotiations in order to extend the favorable terms of the preceding contract negotiated in leaner times. This standoff has continued for several years while the airline has been recording record profits. The airline, for its part, points out that a deal was reached with the union's negotiators last summer which included raises totalling 17.6% over the life of the contract. That deal was soundly voted down by the union membership.

So who's in the right? Has the airline been using the RLA to delay paying raises to its pilots, or have the pilots just gotten greedy in turning down a great offer by the company? Well, as per usual, it depends on with whom you speak. Each side passionately insists that their version of events is the correct one and that the other side is obfuscating. And also, as per usual, there is an element of both truth and falsehood in each narrative.

But my purpose here is not to adjudicate the differences between the two opposing sides, but rather to point out that pilot unions have a natural disadvantage when they attempt to take their case to the public though picketing and other public displays. The problem is that while many pilots in entry level jobs at commuter and cargo airlines do in fact make a very modest wage, by the time a pilot gets on board at a major airline, he or she is making decent coin. And on average, pilots at major airlines are solidly in the middle to upper middle class arena.

This presents a PR problem when trying to garner a sympathetic ear from a public who may feel that the picketing pilots' income is likely higher than their own. Taking any dispute over wages and benefits to the public inevitably invites an inquiry into and a judgement of what pilots actually make. And of course, helpful members of the press and airline managements are only all too willing to facilitate the discussion by providing actual numbers for public consumption.

Hence shortly after their picketing event, Southwest pilots were met by this headline in the Dallas Morning News:

 High pay, job security and profit-sharing — and Southwest pilots are picketing?

The article was somewhat misleading but not factually incorrect. But it is the pilots who have the burden of getting across their message that having no cost of living raises since 2012 is causing their real purchasing power to erode due to the effects of inflation. It's not an easy message to convey while trying to avoid the "greedy" label.

Another difficulty is that many members of the public don't understand the nature of the pilot profession. For instance, public perception of a pilot's work week may be that pilots have a lot of time off. Some do, but many in the public may not realize that pilots can be gone for weeks at a time and miss many family events and holidays that someone in a traditional job would not. But as with compensation, taking their case to the public invites kitchen table discussions of what pilots should be paid and how much they should work. These discussions will probably not end up favoring pilot demands for higher wages.

Lastly, many members of the public don't have a good understanding of unions and unionism in general. This is due to the fact that with only about six percent of the private work force being unionized today, very few Americans have any experience with unions. With the high water mark of union membership in the US having been reached back in the 1950s and on a steady decline ever since, unions may be thought of by the public as an anachronism in today's economy.

I personally don't get too worked up about any of this. My feeling is that the underlying economics more or less determines wage rates. With an ongoing and worsening world wide pilot shortage in progress, wage rates will inevitably increase as the big four major US airlines have to compete to hire from a dwindling pool of prospective pilots to replace huge numbers of retiring Vietnam era pilots.

And on the bright side, informational picketing allows some of the more enthusiastic members of the pilots' union to expend their energies organizing these outings. It seems to help reduce the discomfiture in some pilots which is being made worse by the length of the negotiations. And it actually looks like a lot of fun. Unfortunately, I'll be working.

Will There Be an Airline Strike?

Florida News Journal

The pilots of Southwest Airlines are the latest airline labor group to reject a proposed labor contract. By a vote of 62% against, the 8000 pilots at Southwest recently voted to turn down a tentative agreement which was forged after three years of negotiations with the low cost carrier. Earlier this year the pilots at Delta Airlines and flight attendants at Southwest also rejected proposed contracts.

Does this mean that there will be an airline strike soon?

While the future is impossible to predict, the answer is probably not. To understand why, it is important to understand how the negotiation process works at airlines. It is somewhat different than at other unionized industries.

Railway Labor Act

Collective bargaining at most unionized industries in the US is governed by the National Labor Relations Act of 1935, also known as the Wagner Act. This law provides for the formation of labor unions and the right to bargain collectively for wages and work rules. The law also sets down the requirements for the conduct of strikes and/or lockouts. Airlines, however, are not included under the provisions of the Wagner Act but rather are governed under a law known as the Railway Labor Act or RLA.

Passed in 1926 as a result of negotiations between the railroads and their unions, the RLA was an effort to balance the rights of workers with the realization that a strike against a railroad could be acutely disruptive to the national economy as a whole. Airlines were included under the jurisdiction of the RLA in 1936.

Under the RLA, contracts never "expire", but rather they become "amendable". Should an agreement not be reached by the amendable date of a contract, both workers and management are obligated to continue on as before while a new agreement is crafted.

Should an agreement not be reached, the RLA provides for specific requirements to be met before either management or labor is "released" to "pursue self help" otherwise known as a strike or lockout. One of these requirements is for an impasse to be declared by a mediator after which a mandatory 30 day cooling off period is observed. Only then would a strike be authorized.

No airline today is anywhere near this happening.

Presidential Emergency Board

And even when it does happen, it might not happen. The RLA contains a provision wherein if a labor action  threatens to "substantially to interrupt interstate commerce to a degree such as to deprive any section of the country of essential transportation service," the National Mediation Board (NMB) may notify the President of an imminent threat to commerce. The President may then appoint a three member board to make recommendations for a resolution. This delays a strike even further.

This last happened in 2001 when President George Bush intervened in a labor dispute between Northwest Airlines and its mechanics by invoking a PEB. Before that, Bill Clinton used a PEB to head off a strike by pilots at American Airlines in 1997. With only four major airlines controlling a majority of air travel, it is possible that airline strikes may be a thing of the past. No president wishes to be seen doing nothing in the face of packed terminals and irate flyers.

But as I mentioned above, no current airline is anywhere near an impasse in negotiations. In fact, due to the ongoing pilot shortage, airline managements may wish to get labor troubles behind them quickly as the competition heats up for a dwindling number of pilots needing to be hired to replace the tsunami of retiring pilots. 

This happened recently at Republic Airlines where management threatened to declare bankruptcy in order to increase pilot wages to attract applicants. Republic had been cancelling flights due to a lack of pilots.

It's nice to be wanted.

The Pilot Shortage Meets Econ 101

As the current pilot shortage worsens, two of the players, commuter airline managements and labor unions are turning up the rhetoric on what is actually happening and who is to blame. A recent article in Business Journals placed the blame squarely on "miserly airlines":

The nation's big airlines want you to know that there's a dreadful pilot shortage and they apologize profusely if their commuter-carrier partners cancel flights to your hometown airport due to the debilitating shortfall. 

The nation's big airlines don't want you to know that their commuter carriers, which operate half of all the nation's commercial flights, often pay pilots so little that it's often financially wiser to drive a truck or flip fast-food burgers than fly a plane.

And in addition, what the author of the article also doesn't want you to know it that he doesn't understand basic precepts of economics (which is kind of embarrassing being a financial reporter).

As we've explained previously, a not insignificant part of the commuter airline pilot's compensation is the flight hours he receives in the course of doing his job. Those highly coveted hours, like passes caught or RBIs for ball players, are the stock and trade of aspiring airline pilots. Without the minimum number of hours required, they cannot even apply to a major airline for a pilot job where the real money is.

In fact, were it not for the quest for flight hours, pilots would never even consider working for the admittedly low wages offered by the smaller cargo and commuter airlines. It is an unstated deal that young pilots stay with commuter airlines only until such time as the pilot gains enough hours to move up to a major airline.

The other half of the equation is that since commuter airline managements know their valued pilot employees have no intentions of making a career at their podunk airline, but are there only to gain hours, there is simply no point in paying any more than is necessary. A basic economic tenet of staying in business is to pay your employees only what it will take to retain them and no more. Not miserly, just common sense. It's not a charity.

Doing that is apparently also some sort of crime according to social justice warriors masquerading as online business 'zine reporters who conflate a profit making enterprise with a social cause.

Normally taking between six and ten years to gain the required hours to join a major airline, commuter airlines might be thought of as a minor league for the major airlines. You may have noticed that minor league baseball doesn't pay much either.

Commuter Airline Managements Have a Problem 

This gentleman's agreement of low wages in exchange for flight hours has now been put in jeopardy by several new government regulations mandating hugely higher hours requirements to even get a commuter pilot job. These flight hours must now be purchased and this raises the entry bar to many tens of thousands of dollars to get that still very low paying job. This effectively destroys the calculus young pilots count on to start their careers.

It also throws a wrench into the business plans of commuter airlines who now complain that they don't have enough pilots to fill their cockpits. Their sweet deal of paying pilots food-stamp qualifying wages is also coming to an end. Pilots will now be required by government regulations to purchase their own hours to qualify for any flying job, and will need to service their flight school loans with higher wages.

This whole process begs the question of why huge numbers of hours are needed to qualify for a major airline job anyway. Around the world there are countries without large commuter airline establishments from which to draw pilots, such as Japan. These countries have what are called ab-initio aviation programs which take a pilot from novice to the right seat of a major airline in about a year with only several hundred hours of intensive instruction.

The US military effectively operates such a program with it's undergraduate pilot training, placing pilots in their 20s with only several hundred hours experience into the cockpits of widebody airliners. If this is the future of US aviation, the commuter airline managements may well have a real problem on their hands. The future may be pilots taking out huge loans for ab-initio programs and leapfrogging commuter airlines straight to a major airline job.

So why don't the 'miserly' commuter airlines simply up the pay of their pilots to attract and retain them in sufficient numbers? It's simple: they can't (and expect to stay in business). Their economic models are built on the assumption of cheap pilot labor and their margins are so thin that increased pilot salaries make them into money losing operations at current fare levels.

So why don't they just raise prices to cover the higher salary costs? A trip back into the Econ 101 textbook reveals that for a demand elasticity curve which is not vertical, a higher price will result in less demand for a given product. In English this means that if the already high price of a commuter flight goes even higher, maybe it'd be easier to just watch the game on TV rather than fly to see it. Or perhaps the businessman doesn't have to attend the meeting in person but rather by Skype. (These are called substitute goods). People will fly less and the business will shrink or cease to exist.

And as airlines must sell their product in prepackaged amounts, (the number of seats on their aircraft), below a certain level of demand, service to a particular city becomes a money loser at any reasonable price. It is well known that smaller aircraft have higher per seat costs to operate, which only makes the problem tougher. Time to sell.

Labor Wakes up on Third Base (And Thinks They Hit a Triple)

Right on cue, labor groups have been crowing that the lack of pilots to staff commuter airlines is just desserts for stingy airlines due not to increased government regulation (which labor itself championed), but rather that managements have paid sub-par wages for too long and pilots just woke up one morning deciding not to take it anymore.

Alpa, the largest airline union, calls the shortage imaginary, instead choosing to call this a pay shortage. Well, semantics aside, if you one day go to the grocery and find that your customarily priced $3 bottle of orange juice suddenly jumped to $12, it is doubtful that your first impulse would be to think that gee, I've been paying too little all these years! No, you'd probably think that an early freeze caused a shortage which caused the price to jump.  

Labor is realizing that a shortage labor-supply mismatch may in fact work out in their favor. That is, in favor of pilots who already have an airline job. The new federal regulations, which quintupled the flight hours needed to get an entry level commercial pilot job, are what's known in economic terms as a barrier to entry. 

Barriers to entry are popular with already established members of a particular profession or business as they serve to limit competition and thereby drive up wages or profits. It's been said that the toughest part of becoming a doctor is getting into medical school and that the difficulty serves only to enhance doctor wages. In fact most professional credentialing has some element of this going on.

The taxi and car-for-hire business is being disrupted to great consternation by mobile-paged car services such as Uber and Lyft. They are being ferociously fought by taxi companies and the urban regulatory bodies which profit through control of outrageously priced medallions or licensing requirements.

So this is all well and good if you already have your airline job and are far enough up the list to avoid a furlough should your airline need to shrink to profitability. No where in any economic text book does it state that any particular service should exist and be generally available to the public at a reasonable price. The commuter airline business model may just find that given current fuel and increased labor costs, the service simply can't be provided as a mass commodity.

One need only think of the fledgling space taxi business. We have the technology to routinely fly passengers into space, but with only the occasional billionaire dilettante as a willing passenger, the demand for space plane pilots is small.

Commuter airlines may shrink into a boutique or air taxi operation for very wealth clients in the model of the current fractional ownership of private aircraft, at least for many smaller cities. That would mean the pilot shortage solves itself on the demand side with commuter pilots being furloughed or shrinkage of the industry through attrition.

The winner in all of this? Well, not the small city customer who, when he can even find a commuter flight, will pay through the nose. And certainly not aspiring pilots who will now need to borrow tens of thousands of dollars just to get their first job. And perhaps not even existing commuter pilots who find their companies shrinking due to decreased demand.

Who wins? Flight schools may see an uptick in students who now have to purchase (at about $120/hr) their experience. Probably lending institutions making loans to these aspiring pilots. And most certainly the politicians who get to claim that they "did something" for the aviation industry.

When Vikings Fly

A row over plans that a discount European airline, Norwegian Air, has to start flying to the US has recently broken out here in the colonies. Norwegian Air, the third largest discount airline in Europe has recently announced an expansion across the pond to several new US cities.

Incorporating as Norwegian Air International in Ireland, the company has drawn the ire of US airlines and trade unions on both sides of the Atlantic for what they perceive as unfair business and labor practices.

While Norwegian already flies from several US destinations to Europe, by incorporating the new unit in Ireland, Norwegian will be able to take advantage of a liberal open skies agreement between the EU and the US. In addition, Norwegian will also be able to circumvent some more restrictive Norwegian labor laws which has US pilot unions upset. From an ALPA whitepaper on the issue:

While the EU has created a common aviation area, it remains unclear which regulatory, tax, and labor laws apply to aircrews who may work aboard the aircraft of an airline headquartered in one country, be employed by an entity in a second country, be based in a third nation, and fly routes primarily out of a fourth.

I have to say that given the crushing thicket of rules, regulations, restrictions, and taxes that any airline must negotiate to make a profit, this arrangement (if true) seems rather clever. Personally, I think that the US union's time and effort would be better spent on reducing barriers to commerce here and abroad rather than working to impose those barriers on a smart competitor.

Now I'm no expert on bi-lateral agreements between the US and the EU, but it appears that Norwegian Air could avoid all this trouble by simply changing the name of their Irish unit to Irish Air and then getting on down the road. They would, though, still have to compete for passengers, recruit and train crews, and still operate their aircraft in accordance with both US and EU safety standards.

And speaking of crews, there still is apparently a worldwide pilot shortage which we've noted before. The commercial aviation markets in both India and China are exploding and there is a continuing huge demand for experienced transport category pilots.

Unions continue to be the bane of airlines worldwide, and one mechanism that many overseas airlines utilize to avoid the establishment of pilot unions is to not actually hire any pilots. Consulting firms are created which hire pilots on a contract basis, usually for periods of three to five years to staff the airline. If after the contract period is up and the airline likes you, you'll be offered another. If not, sayanora.

While Norwegian does maintain a website listing pilot requirements for new hire pilots, their jobs opening website has no pilot positions offered. Most curious until a quick search reveals the site of aviation consultants Rishworth Aviation who are "eagerly seeking" Boeing qualified pilots for placement at Norwegian flying brand new Boeing 787s.

In this way airlines can avoid the "ratchet effect" of ever increasing but never decreasing wage rates of unionized carriers. Asian airlines have used this practice for years using consultants such as Air Charter Service and Iasco to provide American pilots to airlines like JAL and All Nippon.

But getting the pilots is the trick, isn't it? How many type rated and current Boeing pilots do you suppose are just sitting around the house waiting for a call to go to work flying for Norwegian? My guess is that there aren't many (who aren't already working somewhere). How does one go about becoming a qualified Boeing pilot anyway?

I happen to know. Many years ago, to apply for my current job, I actually had to purchase my own type rating (which is an FAA designation to fly a certain type aircraft) for a 737. Boeing 737s can actually be rented for about $50...a minute. Cheap, right? So the whole deal was only about $10 grand. The 737 is Boeing's smallest airliner and a type on say a 777 would be unobtainable to most private citizens except wealthy dilettantes like John Travolta. Plus, this gets you the basic rating but no experience.

The point is, most pilots walking around with those types of ratings had them paid for by the airline they worked for. This means that Norwegian is hoping to raid the cadre of other airlines, and that means they have to offer a better deal.

There are many US pilots working overseas in hell holes such as the UAE and India who do so because they've been either laid off from a bankrupt US carrier, or perhaps got a late career start and don't wish to join the bottom of a union seniority list. They go overseas to fly in a lousy place for the pay. It will be these pilots that Norwegian will be trying to attract. And they'll have to compete on pay.

Will they be successful? It depends on how you define success. Part of Norwegian's business model is based on reduced labor costs. Implicit in this assumption is that "cheap" labor including pilots are available in sufficient numbers. The other part of the equation is the other big elephant in the room which is fuel and other costs which are unavoidable in long haul flying. From the WSJ:

It isn't uniformly accepted that low-fare competition is inevitable on intercontinental routes, though. "You cannot pack people like a sardine can," Qatar Airways Chief Executive Akbar Al Baker told reporters in October. "I don't think it will work." 

Among the challenges to the discount model on long routes: Many cost-saving techniques used by short-haul operators can't be replicated. Discount carriers like Southwest Airlines Co. LUV +0.08%  and Ryanair Holdings RYA.LN -1.89%  PLC, the U.S. and European leaders, try to get planes unloaded and back in the air quickly. That is harder to do on intercontinental flights, which face more departure restrictions. 

Southwest, America's putative low cost leader is having it's own problems, as the short haul market is collapsing and the long haul market is mature and populated by newly merged mega-carriers with freshly reduced labor rates due to post 9/11 bankruptcies.

If Norwegian manages to build a better mouse trap, then bully for them. They might find though that when flying the same airplanes in the same skies as their competitors, any competitive advantage is fleeting.