12/02/12, 14:12:50 EST

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All airline eyes are on Texas

chron.com

As goes Texas, so goes the airline industry. That's how things are shaping up as the three major Texas-based airlines get ready for contract talks with their pilots unions.

"Texas is the hotbed," said Bill Swelbar, a research engineer with the Massachusetts Institute of Technology, who has been a labor consultant to the industry for 25 years. "It's where it's all happening."

The challenge is to break the negative cycle that has characterized airline labor talks since deregulation almost 30 years ago.

"All airlines are going to have to find some ways of sharing the wealth, rather than just putting it into the base rates of pay," Swelbar said.

The major carriers are poised to have a profitable year for the first time since the 2001 terror attacks, with analysts predicting combined earnings of about $5 billion.

That, however, pales in comparison with the $12 billion in labor concessions airlines extracted during the tough times.

As a result, pilots are likely to demand a reward for their past sacrifices while airlines, worrying about their tenuous financial recovery, are going to be reluctant to give it to them.

What happens in Texas during the next year or so may chart the course for the entire industry.

The best prospects for an amiable agreement are at Houston-based Continental. While it squeezed concessions from pilots, the cuts weren't as deep as most of its rivals. Continental also has managed to keep its pension funded.

It opened communications with its pilots early, and so far, there's been little bluster. That's a good sign that reflects how far things have come at Continental in the past decade.

"They at least seem to have rational discussions with one another," Swelbar said.

Capt. Tom Donaldson, chairman of the Air Line Pilots Association's executive council at Continental, said while the airline is working well with pilots so far, they expect to share in the carrier's success.

"Our guys have taken a lot of concessions," he said. "We've been there for the company."


Acrimony at American
At American Airlines, the tone is different. Last month, leaders of the pilots union sent a letter to the carrier's chief executive, Gerard Arpey, that closed with this sentiment:

"Enjoy your blood money and your union-busting meetings. We'll see you in court, in the newspapers and on the picket line."

American has a long history of acrimony with its pilots, marked by strikes, lawsuits, work slowdowns and presidential intervention.

This time around, both sides have less room to maneuver. The pilots want a pay increase of as much as 30 percent, while American already is struggling with the highest crew expenses in the business. Last year, its average cockpit cost per hour was $768, compared with $544 at Continental, according to MIT's Airline Data Project.

The biggest struggle, though, may be at Southwest. Once known for its amiable labor relations, talks have grown increasingly testy in recent years.

Over the years, Southwest has rewarded pilots, while getting them to work more. Its pilots fly more average hours per month than any other carrier and draw the highest average wages, according to MIT's data.

The higher productivity fueled Southwest's rapid growth, which enabled it to pay the higher salaries.

No more. The carrier has said its growth is slowing, and its pilot productivity is maxed out. What's more, fuel prices — an airline's biggest expense — are rising. Fuel costs affect all airlines, but Southwest's low-fare structure makes it particularly vulnerable.

In other words, Southwest is going to have to come up with some new tricks if it's going to maintain its trademark labor harmony.

"It's a different day at Southwest," Swelbar said. "They're really not immune this time around. That's going to require different gloves for the management team."

Airline labor contracts are never easy, but if the Texas carriers can hammer out deals that both sides can accept, it may break the pay-and-concede cycle that has persisted for too long.

On the other hand, if one airline agrees to a rich contract, others are likely to follow, and we know how that ends.

"If somebody blinks, then we're right back to where we were, and we'll be having the same restructuring discussions five years from now that we
had two years ago," Swelbar said.


Seven years of peace
The three Texas carriers already have accomplished something their peers haven't: none has filed for bankruptcy in the past seven years.

Now they have to achieve a labor peace that benefits employees, passengers and customers alike. If they can do that, they may change the course of the entire business.

 Printable Version  | published Oct 17, 2007