Labor Relations in the Aviation and Aerospace Industries

8. The Airline Industry

165 8. The Airline Industry Theairlineindustryisamajorcomponentofthe U.S. economy, with annual operating revenues of almost $155 billion in 2009. Airlines are both capital intensive, requiring hundreds of billions of dollars of investment in equipment and facilities , and labor intensive, with U.S. airlines employing over 536,000 people in 2009.1 Between the passage of the Title II Railroad Labor Act (RLA) amendment in 1936 and the passage of the Airline Deregulation Act of 1978, the U.S. airline industry and the air transport unions developed a workable set of procedures for handling disputes. During this time period, agreementsbetweenthecarriersandtheunions, although at times reached only after protracted strikes,weregenerallyveryfavorabletotheunions in the areas of wages, benefits, and working conditionsyetwithoutunduefinancialimpactonthe carrier. This latter point seems paradoxical but was the result of a public policy decision to heavily regulate the economics of the air transport sector and the unique nature of that regulation. Sinceeconomicderegulation,theU.S.airline industryhasexperiencedawildroller-coasterride with the fluctuations of business cycles, undisciplined excess capacity industry-wide, disruption caused by the terrorist attacks of September 11, 2001 (9/11), and skyrocketing fuel prices beginning in late 2007 (see fig. 8.1). An initial rush of new entries by upstart airlines operating with nonunion labor brought a sudden shock of competition to the market at the dawn of deregulation, and management of established (legacy)carriersstruggledtofindwaystocompete in this rough-and-tumble new business environment .Manyofthelegacyairlinesfailedandeither reorganizedordisappearedthroughbankruptcy, the latter a route also taken by many failed upstarts .Otherswereswallowedupinmergersand acquisitions, characterized by extensive reliance on hostile takeovers and leveraged buyouts. To help the airlines survive, labor unions granted wageandbenefitconcessionsorhadsuchconcessionsforceduponthembythebankruptcycourts . Then the economy perked up, and the industry earned record profits. Unions looked to recoup concessionsgiveninthehardtimes,withinterest. But the highly profitable period again passed, its passing hastened by the consequences of 9/11. In the wake of 9/11, several already struggling carriersturnedagaintobankruptcyreorganizationto survive. No sooner had airline passenger traffic finally returned to pre–9/11 levels than oil prices began to climb at a rate and to heights without precedent,triggering(amongotherfactors)aserious downturn in the U.S. economy. Historically, fuel expenses have ranged between 10 percent and 15 percent of U.S. passenger airline operating costs, but by mid-2008, they were running between 30 percent and 50 percent. With oil prices doubling within the year between June of 2007 and June of 2008, fuel costs surpassed labor costs for the first time in the history of the industry. Although fuel 166 The Changing Labor Relations Environment prices dropped for the first few months of 2009, they then resumed an inexorable climb, accordingtotheAirTransportAssociationofAmerica , a trade association of the U.S. airline industry, eachdollar’sincreaseinthepriceofabarrelofoil increases the annual fuel costs of the U.S. airline industryby$465million.2 Inthespringof2008, U.S. airlines began serious capacity reductions: retiring hundreds of older, less–fuel-efficient aircraft; dropping unprofitable routes; reducing workforces; and looking again toward mergers and acquisitions (and reorganization in bankruptcy ) for routes to survival. Through it all, airlineworkershaveseenreductionsinpay ,benefits, and job security as they have granted negotiated concessions in efforts to help their airlines survive or had such losses forced upon them by the bankruptcy courts. Others have lost jobs to cutbacks (downsizing) and outsourcing . Airline management and employees alikemayfeelthatthey’reonthereceiving end of the ancient Chinese curse “May you live in interesting times.” The Era of Economic Regulation by the CAB Air transport economic regulation had itsformalbeginningswiththepassageof theCivilAeronauticsActof1938.Thisact createdtheCivilAeronauticsAuthority, the Administrator of Aeronautics, and the Air SafetyBoard.In1940,theCivilAeronauticsAuthorityandtheAirSafetyBoardwerecombined into the Civil Aeronautics Board (CAB). The CAB was granted broad economic regulatory power,anduntiltheboardbeganmovingtoward aderegulatedposturein1976,itcontrolledvirtually every aspect of airline economic operation. Certificates of Public Convenience In 1938, when industry regulation began, the Civil Aeronautics Authority granted only sixteenCertificatesofPublicConvenienceandNe cessity to airlines that the authority felt were financially strong enough to survive. Under the 1938 act, a carrier was required to have such a certificate before it could operate scheduled air service or carry U.S. mail. A regulated and controlled airline environment was put in place. The authority to issue and rescind operating certificates and the other economic policy tools available to the CAB allowed it to: • Control the number of carriers permitted to operate in the U.S. • Control the entrance or exit from a particular city pair market (no carrier could enterorstopservingamarketwithoutCAB approval) • Control fares by approving, modifying, or rejecting the fare requests of individual Figure 8.1. Graphic illustration of levels at which airliners struck the World Trade Center on September 11, 2001. Early that morning, nineteen hijackers took control...