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Airline union concessions in the wake of deregulation.

Airline union concessions in the wake of deregulation

While most commentators would agree that deregulation has had an important influence on airline industrial relations, close inspection of developments in the industry suggests that the connection between deregulation and recent union concession agreements may not be obvious. The initial changes in the airline industry created by the Airline Deregulation Act of 1978 seem to have increased union bargaining power. The industry's Mutual Aid Pact was banned, and any new strike fund now must meet a much more restrictive set of guidelines. In addition, the end of the Civil Aeronautics Board's control over routes and schedules means that there is now no guarantee that any of a carrier's business will survive a strike; competitors can come into one's markets during a strike and lure those passengers away.1 At smaller carriers, however, the surfeit of pilots and other skilled personnel during the recession made it possible for carriers to threaten to break strikes by hiring replacements, possibly shifting some bargaining power back to management.2

The carriers' increased vulnerability to strikes and the threat they may present to employment has raised the stakes associated with industrial action, and both sides are now extremely reluctant to engage in it. Indeed, one of the main developments in industrial relations since deregulation has been a very sharp drop in strike activity. The most recent data suggest that industrial action is at the lowest level in 16 years;3 a remarkable statistic given that the industry in general and labor relations in particular are going through the most traumatic changes in their history.

Of course, the most important change created by deregulation is that carriers are now free to compete for markets on the basis of fares and schedules. By itself, competition should not necessarily lead to pressures for concessions; after all, the highest union wages and most stable industrial relations have historically been in industries with competitive product markets, some of which were extremely competitive. John R. Commons argued in 1909 that in order for unions to raise wages above the market level, they must "take wages out of competition' by enforcing uniform contracts across the entire product market so that no competitor will have a labor cost advantage that can be turned into a competitive price advantage.4 Where the unions were able to do this, wages were protected no matter how competitive the product markets were. In air transport, the unions have historically covered virtually the entire product market. The major and national carriers, all of which are at least partially unionized, still fly more than 90 percent of all revenue passenger miles; the remainder goes to intrastate and "upstart' carriers, many of which are at least partially unionized. The nonunion share of the air transport market is therefore roughly 5 to 7 percent, and these airlines often do not compete with the trunk carriers in the same markets.5

It would seem reasonable, therefore, to conclude about deregulation as did Hendricks, Feuille, and Szerszen that "the industry and unionization characteristics that developed over 40 years of regulation have created a bargaining environment that should not change substantially in the future.'6 If unions still cover the product market, then why the pressure for union concessions?

No uniform contracts

Despite their coverage of the product market, unions never enforced uniform contracts across the product market and therefore never took wages out of competition through collective bargaining. Civil Aeronautics Board restrictions on routes and fares served that purpose, however, by preventing labor cost advantages from being translated into lower fares and a competitive advantage. Because of this Civil Aeronautics Board protection, there was no pressure forcing the evolution of industrywide bargaining of the sort that had occurred in manufacturing. The unions, therefore, directed their efforts toward other goals--meeting the varying needs of members at the different carriers. They did this by giving the locals almost complete autonomy, especially in collective bargaining. As a result, the bargaining structure in airlines has always been single craft-single employer. This type of bargaining structure was encouraged by the Railway Labor Act's requirement that representation be by craft, leading to a plethora of unions in the industry. Edward B. Shils points out that significant industrial disputes in the industry generally involved only one union, and disputes across carriers were virtually nonexistent.7 This bargaining structure remains despite the creation of a special coordinating committee of air transport unions within the AFL-CIO.

As soon as the Civil Aeronautics Board regulations ended and fares became competitive, wages also came under competition. Because bargaining is carrier-specific, there is no mechanism to prevent the different local unions from undercutting each other's labor costs. Financially vulnerable carriers were able to secure concessions and lower labor costs from locals hoping to reduce expected employment losses; their competitors were then placed at a cost disadvantage (one carrier estimated that 78 percent of its controllable costs were labor related), so they also demanded concessions.8 Soon, the industry's wage structure came apart.9

Nevertheless, there are many ways to reduce labor costs, and the contract concessions secured by the carriers span a variety of areas in addition to wage cuts and freezes. The most important concessions in the industry, especially for flight crews and attendants, concern schedules. About 45 percent of contract concessions in 1981-84 dealt with scheduling issues. In contrast to other industries, there have been fewer efforts to broaden job classifications in airlines, presumably because of the resistance generated from rivalries between craft unions.

For many carriers, the issue has been whether contract concessions can achieve the permanent restructuring of labor costs necessary to meet growing competition from nonunion carriers which are currently hiring new employees at roughly half the pay of their more senior colleagues at the trunk carriers. The solution has been to introduce two-tier or "B' wage scales which provide lower pay for new hires. Obviously, two-tier rates reduce average labor costs only as fast as the carrier can hire new workers--expanding the work force or at least generating turnover. For the unions, two-tier scales represent a concession that costs the current membership nothing and which creates incentives to hire new workers. (The existence of two-tier scales raises potential problems for union governance, however.)

Variations by work group

Perhaps the most interesting issue in airline industrial relations is the distribution of contract changes by work group. How interested a work group is in making concessions depends not only on the probability that concessions will save jobs but also on the value of those jobs--how do they compare to alternatives elsewhere? In addition, the ability of local unions to grant concessions may depend on their autonomy from the interests of the international and on the extent of competition from other unions for their members. As Arthur M. Ross argues, unions may feel compelled to take a harder line in bargaining when they face competition from other unions.10 Together, these arguments provide a good explanation of the pattern of contract concessions outlined below.

Pilots. Taken as a group, pilots have made more concessions than all other work groups combined. In almost every case, they have been the first group to make concessions and have given up the most. The reason for this seems clearly to be because pilots have the most to lose from layoffs. First, alternative employment with other carriers would result in a sharp pay cut. Pilots who switch carriers lose their seniority and move to the bottom of the seniority pay scale at their new carrier. During the most recent recession, as many as 5,000 pilots were laid off, suggesting that the ability to move to a new carrier was remote. Second, there are almost no employment prospects outside of the airline industry that would make use of their skills. With respect to union characteristics, many argue that pilots identify with management and have more understanding of their problems than do other work groups. In addition, the tremendous autonomy that the locals have in bargaining implies that they are free from pressure to maintain some industry pattern. Further, the fact that the Air Line Pilots Association faces almost no competition from other unions seeking to represent pilots makes it easier to take sometimes unpopular decisions such as granting concessions.

Flight attendants. The situation facing flight attendants is, perhaps surprisingly, quite different from that of pilots. While there is no market outside of air transport for these specific skills, flight attendants have less

to lose from layoffs than pilots because their wages are considerably less and seniority-based pay scales are less steep, making it easier to move to a different carrier.11 Perhaps most importantly, flight attendants have historically had less attachment to their jobs than pilots; if one is expecting to move to a different job, there is less interest in making sacrifices to save the current one. The characteristics of flight attendant unions also differ from the pilots. There are as many as 11 unions representing flight attendants, and the rivalry among them is intense. Mark L. Kahn noted, for example, that between 1976 and 1979, flight attendants at six carriers changed their representation.12 As a result, the flight attendant unions have taken much tougher lines in bargaining across the carriers and have agreed to fewer, less significant concessions (18 percent of the total) than have the pilots.

Mechanics. Mechanics have been the work group the least inclined to agree to concessions. Only 11 percent of all concessions in the industry were granted by mechanics, and these were typically far less significant changes than for other groups. From the employers' point of view, the labor cost differential associated with mechanics is not great relative to the nonunion competition because the mechanical work for the latter is typically done under contract by the larger unionized carriers. Further, alternative employment is much more available at other carriers and outside air transport (in manufacturing, for example) at wages comparable to those paid by the trunk carriers. Perhaps most importantly, the structure of the International Association of Machinists which represents the vast majority of airline mechanics works to limit concessions.13 The international has the ability to nullify local agreements and has used that power to prevent concessions at individual carriers.14 The International Association of Machinists has a strong incentive to avoid concessions altogether in order to prevent them from spreading to its negotiations outside of air transport where similar settlement patterns are followed.

In many cases unions are able to secure improvements in some aspects of employment relations in return for granting concessions. These quid pro quos typically are secured in areas which do not raise current labor costs, often expanding negotiations into new areas outside of the current contract. Whether unions are able to secure these improvements depends on how badly management needs union cooperation; in short, whether the unions have bargaining power.15 As argued above, the airline unions still have considerable bargaining power, and it is therefore not surprising to find that they have secured an important array of improvements.

The pressures generated by carrier-specific bargaining in competitive product markets tie the interests and prospects of union members to the performance of the carrier, and the quid pro quos strengthen that relationship. In addition to the fact that employment prospects are closely linked to carrier performance, participation in corporate decisionmaking helps create commitment on the part of the work force to the goals of the airline; profit-sharing, stock ownership, and other arrangements provide financial incentives to pursue those goals. Together, these arrangements will further the attachment of airline employees to their employers, perhaps making it more difficult for their unions to achieve the industry-wide structure that manufacturing unions have historically used to counter wagecutting pressures.


ACKNOWLEDGMENT: Thanks to Jim Conway and Jerry Glass of the Airline Industrial Relations Conference (AIRCon) for providing the contract data analyzed in this study.

1 For example, United's markets were apparently so severely damaged by its 58-day machinist strike in 1979 that it initiated half-fare coupons to try and win some of its business back; this move sparked the industry's first major

fare war which had disasterous consequences for all participants. See "Fare Wars,' Forbes, Sept. 1, 1981, p. 36.

2 Continental replaced some striking mechanics and pilots in 1983 and unilaterally imposed lower pay rates as part of its bankruptcy reorganization plan. Mark L. Kahn notes that Century Airlines took somewhat similar action in 1931. It took advantage of the surplus of pilots and the need to cut costs and prices by forcing its pilots to resign and reapply for their jobs at half pay. This action led to ALPA's first strike. See Mark L. Kahn and Gerald Somers, eds., "Airlines,' Collective Bargaining: Contemporary American Experience (Madison, WI, Industrial Relations Research Association, 1980).

3 Forty-Ninth Annual Report (Washington, National Mediation Board, 1983).

4 John R. Commons, "American Shoemakers, 1648-1895: A Sketch of Industrial Evolution,' Quarterly Journal of Economics, November 1919.

5 These calculations are based on statistics on carrier market shares from the Civil Aeronautics Board, 1982. Richard B. Freeman and James L. Medoff's 1979 estimates suggest that 89 percent of air transport production workers were covered by collective bargaining agreements in 1969-72. Coverage of the product market was virtually complete because the organized carriers flew far more flights and typically did not compete with the nonunion carriers, who were concentrated on intrastate routes.

6 Wallace Hendricks, Peter Feuille, and Carol Szerszen, "Regulation, Deregulation and Collective Bargaining in the Airlines,' Industrial and Labor Relations Review, October 1980, pp. 67-81.

7 Edward B. Shils, "Union Fragmentation: A Major Cause of Transportation Labor Crises,' Industrial and Labor Relations Review, October 1971, pp. 32-52.

8 "As Continental Takes Bankruptcy Step, Rivals Plan to Move In,' The Wall Street Journal, July 29, 1983.

9 The great irony now is that during the early years of the industry, the carriers had pushed for industry-wide bargaining that would have taken wages out of competition but were rebuffed in these efforts by the unions. Brief experiments in multicarrier bargaining with the International Association of Machinists in the 1960's were abandoned. See Mark Kahn, "Wage Determination for Airline Pilots,' Industrial and Labor Relations Review, April 1953, pp. 317-36; and Mark L. Kahn "Airlines.'

10 Arthur M. Ross, Trade Union Wage Policy, (Berkeley, CA, University of California Press, 1948).

11 "Competition and the Airlines: An Evaluation of Deregulation' (Washington, Civil Aeronautics Board, December 1982).

12 Mark L. Kahn, "Airlines.'

13 For example, the International Association of Machinists took one of its locals to court recently in an effort to prevent a concession agreement from being approved at Braniff. See "Machinists' Concessions at Braniff Held Binding,' Daily Labor Report, Sept. 11, 1984, p. 1.

14 "Airline Wages are Set for a Long Slide,' Business Week, Apr. 9, 1984, p. 127.

15 Peter Cappelli, "Union Gains Under Concession Bargaining,' Proceedings Meeting (Madison, WI, Industrial Relations Research Association 36th Annual Meetin (Madison, WI, Industrial Relations Research Association, 1984), pp. 297-305.
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Title Annotation:Thirty-Seventh Annual Meeting of the Industrial Relations Research Association, Dallas, December 1984
Author:Cappelli, Peter; Harris, Timothy H.
Publication:Monthly Labor Review
Article Type:transcript
Date:Jun 1, 1985
Previous Article:Innovative approach to plant closings: the UAW-Ford experience at San Jose.
Next Article:Productivity and costs in 1984.

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