Airline Restructuring and its Effect on Labor. Ana McAhron-Schulz Air Line Pilots Association Minnesota Economic Association October 6, 2006

Transcription

1 Airline Restructuring and its Effect on Labor Ana McAhron-Schulz Air Line Pilots Association Minnesota Economic Association October 6, 2006

2 Air Line Pilots Association Who We Are Largest commercial air line pilot union in the world, representing 61,000 pilots of 40 airlines in the U.S. and Canada ALPA provides three critical services to its members: Airline Safety and Security Representation Advocacy Celebrating 75 th anniversary

3 What Led to Airline Restructuring of Last Five Years? Slowing economy after dot.com bubble burst Terrorist attacks of 9/11 Led to unprecedented reduction in demand and revenue Accelerated economic slowdown War in Afghanistan and Iraq SARS Substantial and unpredictable fuel cost increases Disparity between low cost carriers and legacy airlines Overcapacity in many markets Management capabilities Highly leveraged business

4 Casualties of 9/11 Bankruptcies Aloha Airlines ATA Airlines Atlas/Polar Air Cargo Delta Airlines (also subsidiary Comair) ERA Aviation Florida Coast Airlines Gemini Air Cargo Great Plains Airlines Hawaiian Airlines Mesaba Airlines Northwest Airlines Sun Country United Airlines US Airways (2) Airline Shutdowns Emery Worldwide Independence Air Midway Airlines National Airlines Southeast Airlines TransMeridian Airlines Trans World Airlines Vanguard Airlines Out-of-Court Restructuring American Continental Alaska America West Source: Air Transport Association, ALPA E&FA

5 What Did Restructuring Consist of? Immediate decision by legacy carriers to downsize Parked aircraft and cancelled orders and options Furloughed thousands of employees Followed by focus on significant cost reduction efforts Labor costs were number one and principal target Inherent weaknesses and inability to obtain additional financing from ATSB or other sources forced some airlines into bankruptcy After several rounds of cost cutting, airline managements eventually focused on revenue enhancement

6 Effect of Restructuring on Labor? Disastrous Jobs lost Significant wage reductions Harsher working conditions Reduced benefits Lost pensions Diminished career opportunities

7 Restructuring Led to Significant Loss of Pilot Jobs 7,000 6,000 Pilot Furloug 5,000 4,000 3,000 2,000 1,000 0 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Source: ALPA Membership Database ALPA Pilot Furloughs

8 Many Carriers, Such as United, Opted to Downsize Fleet as Part of Cost Reduction Plans # Active Aircraft United Airlines 1/1/01 United Airlines 1/1/03 United Airlines 1/1/06 Source: BACK Fleets

9 Many Carriers Parked Aircraft 2,500 Parked Aircraft 2,000 # Aircra 1,500 1, Source: BACK Fleets and Merrill Lynch 5/15/06

10 Focus on Labor Cost Reductions Labor costs comprised approximately 35-40% of total operating expenses Several rounds of negotiations at various carriers led to significant erosion of labor pay, working conditions, job security and benefits Pilots have suffered the brunt of these reductions Situation has been exacerbated by bankruptcy process as well as lack of Administration/Congressional support for airline labor ATSB Pension legislation

11 Since 2001, Total Industry Labor Concessions Amount to over $12B per Year 4,000 3,500 Pilots 29% and 11.8% Cut Pilots 32.5% and 14% Cut (in Millions) per Year 3,000 2,500 2,000 1,500 1, Pilots 21% and 18% Cut Pilots 23% Cut Pilots 15% and 23.9% Cut Pilots 8.9% Cut Pilots 26% Cut 0 US Airways United American Delta Northwest Continental Alaska Source: ALPA E&FA August 2006, ECLAT

12 Productivity has increased in labor more than efficiency of fuel and aircraft utilization Source: IATA Industry Outlook March 2006

13 Airlines are transporting record number of passengers with fewer and fewer employees 600, , , , ,000 Employees 400, , , , , ,000 Passengers 200, , , Top 10 Airlines Passengers Sources: DOT Labor Statistics (10 largest carriers) (Full and Part Time Employees) Air Transport Association

14 Pilot Reductions Pay Eroded to pay levels of early 1980 s Many pilots W-2 earnings were reduced by 50% between pay and downgrades Working Conditions Benefits increase in all insurance costs Pension Loss of pension benefits that PBGC guarantee will not even meet not all airline labor was impacted the same way Terminated pension plans: US Airways, United, Delta Frozen pension plans: Northwest, Continental

15 An example of a US Airways Pilot 737 CAPT A320 CA A330 F/O Approx 57.5% drop in Earnings with downgrade 767 F/O Approx 21% Pay Cut (2002), Followed by a 18% Pay Cut (2004) 757 F/O A330 F/O US Airways Pilot with 14 Years of Service if restructuring didn't occur US Airways Pilot with 14 Years of ServiceToday

16 An example of a Mesaba Pilot Avro Captain 38% decrease in Earnings Saab Captain Saab Captain Saab FO Mesaba Captain with 17 Years of Service Today Mesaba Captain possible after concessionary contract

17 Mesaba may have one of the lowest 50 Seat Jet Rates in the industry Captain with 7 Years of Service on 1/1/07 Comair Eagle Express Jet PSA Chautauqua Air Wisconson Industry Average Mesaba Current Skywest Trans States Pinnacle ASA Mesaba Proposal Mesa

18 Absent Organized Labor, Situation Would be Far Worse for Airline Employees ALPA Negotiating Process Analysis Direction Negotiations Membership Ratification What ALPA was able to secure: Continued job security protection with particular focus on merger/fragmentation policies and outsourcing Financial returns including pay increases (both guaranteed and variable), equity, profit sharing, notes Where defined benefit plans were terminated or eroded, we negotiated improvements to defined contribution plans Right to continued access to information Board representation remained at United, Northwest, Delta, Hawaiian

19 Focus is Now on Next Round of Bargaining Airline industry performance is improving Revenues are up Fuel costs are decreasing Capacity discipline Strong demand More competitive environment as all airlines are performing on a more level playing field Outlook for 2007 is profitable Pilots will look to participate in the upside of the industry