United Airlines employees picket outside the United terminal at O’Hare International Airport on June 16, 2016 in Chicago, Illinois.
U.S. airlines are headed for their 10th consecutive year of profitability and their employees, from pilots to catering workers, are demanding higher wages and better benefits.
Next year, major U.S. carriers will be negotiating labor agreements with more than 120,000 unionized employees, a process that is set to add to their expenses. American will be negotiating with most of its unionized workforce, including pilots, flight attendants and maintenance workers.
Labor costs are airlines’ biggest expense and they have become a larger portion of overall costs. Last year, labor costs ate up 28% of U.S. airlines’ $187 billion in revenue, up from a 21% share in 2008, as airlines hired more workers and compensation rose, according to data from trade group Airlines for America.
“There are simply more funds to get and workers are cognizant they’re turning out more value,” said Sara Nelson, international president of the Association of Flight Attendants, which represents some 50,000 cabin crew members at 20 airlines including United. The AFA recently launched a campaign to unionize flight attendants at Delta, whose cabin crews do not belong to a union, an outlier among the big four U.S. carriers.
A decade ago, U.S. airlines were struggling through a wave of bankruptcies and subsequent megamergers that left four carriers in control of about three-quarters of the market. But profits peaked in the middle of the decade and analysts expect net income at the four biggest U.S. airlines to grow less than 1% from this year to $12.44 billion.
“When the airlines are making money, it’s hard to deny the increase” in compensation, said Kit Darby, a consultant who tracks pilot pay. “Everybody tries to get a good contract when times are good. If it’s a short downturn, they hold on to what they got.”
Airline workers in recent months have staged protests at airports and elsewhere, demanding pay increases, more predictable schedules and better working conditions. Workers in other industries including hospitality, auto manufacturing and grocery stores have echoed their worries this year after U.S. corporate profits rose over the last decade, prompting them to demand a larger cut.
“The rubber band has been stretched so far,” said Nelson.
Labor talks with some airline employees have turned tense in recent years. Executives at Southwest early this year and American over the summer blamed the unions representing their mechanics for purposefully slowing down work to gain leverage in yearslong contract talks, causing operational problems that led to the cancellation or delay of thousands of flights. The unions have denied the allegations.
“There’s a potential for more labor discord here in the U.S.,” said Savi Syth, an airline analyst at Raymond James, adding that the industry is more stable now than a decade or more ago. “Labor has to buy in that this is a different industry.”
Southwest reached an agreement with its mechanics in March that was overwhelmingly approved two months later, ending more than six years of talks. The five-year contract included $160 million in back pay and a 20% increase in wages.
Southwest’s talks with flight attendants will continue into next year, while it also holds talks with pilots, customer service agents and dispatchers. The Dallas-based carrier’s pilots and flight attendants are worried about the prolonged grounding of the Boeing 737 Max, which the unions say has cost employees more than $100 million in wages. Southwest’s flight attendant union last week asked the company to suspend hiring while the plane is grounded.
Earlier this month, Southwest said it reached an agreement with Boeing over the 737 Max grounding and said it would share $125 million with employees. The carrier said on a third-quarter earnings call that it had lost $435 million in revenue in the first nine months of the year because of the Max’s grounding. The president of American Airlines’ pilots union told CNBC he wants the airline to similarly share with pilots a portion of American’s eventual compensation from Boeing.
For its part, American continues to negotiate with the unions representing its mechanics. American sued the maintenance workers‘ unions in May over the travel disruptions and won an injunction against them in August, prohibiting the group from interfering with the airlines’ operations.
“Since August, teams for the company and the union have met for multiple days nearly every week,” said American Airlines spokesman Josh Freed, adding that the two groups have “made considerable progress” this month. The next round of talks is scheduled for Jan. 13-14.
Difficult to strike
Unionized airline workers’ contracts have amendable dates, and airlines have passed or are close to passing that point for several groups. But their contracts don’t expire. They continue to be valid but once the amendable date passes, negotiated raises no longer take effect, union officials said.
It is also extremely difficult for airline workers to strike under the Railway Labor Act. When talks break down, federal mediators step in and the workers essentially need to be permitted to strike. The last commercial airline pilot strike in the United States was by Spirit Airlines pilots in 2010.
More than just pay
Workers aren’t just seeking additional pay. Mechanics at American are seeking to limit outsourcing of their jobs to foreign bases. Pilots at American Airlines for example, have said that they are looking for a better quality of life through improved scheduling that includes fewer pilots on reserve — which requires pilots to be on call — and the ability to more easily change the trips they fly.
“Scheduling is our No. 1 issue,” said Allied Pilots Association President Eric Ferguson, an Airbus A320 captain. The union, which represents American Airlines’ pilots, is also asking for higher pay for flying less-desirable trips and for easier ways to make those routes available to pilots. That change would incentivize pilots to pick up those trips and ease operational problems, helping preserve revenue and profits that are then shared with employees, the union contends.
“I’m not just saying pay us more,” Ferguson said. “I’m saying fix the problems.”
The some 15,000 pilots represented by APA started early talks this year, but the contract becomes amendable at the start of 2020. The union is proposing a three-year deal with 16% raises over that period, while the company has pitched a five-year deal with the same pay increases over that time, according to APA. The company had aimed to get a deal done before then.
“Shame on us if we can’t figure out over the course of a year how to get a contract done before the amendable date,” American Airlines CEO Doug Parker said at a town hall with pilots in June 2018, ahead of early talks.
Pilots at Delta, represented by the Air Line Pilots Association, are also seeking better quality of life, in addition to pay increases in contract talks that began in April.
Delta pilots won a 16% raise in 2016, a 3% rise in 2017 and 2018 and a 4% increase in 2019. But the pay still falls short compared with inflation-adjusted wages pre-bankruptcy, the union said.
Those pilots complained after working record overtime in the summer as the Atlanta-based airline expanded its flight schedule to meet customer demand after rivals that flew the Boeing 737 Max cut thousands of flights over the peak travel period of the year. Delta is one of the few U.S. carriers that doesn’t fly the troubled jetliner, which the FAA grounded in March after two crashes — one in Indonesia and another in Ethiopia — killed 346 people.
“We’re glad to share in the success that Delta has had,” said Chris Riggins, a spokesman for the Delta pilots union and a first officer. “Now that they’re doing well and we’re all contributing to their success … we’re looking to get some of that quality of life.”
The pilots are also seeking to protect their own jobs as Delta pursues more partnerships with other airlines that allow them to sell tickets while pilots from other airlines fly the routes, and vice versa.
“Delta remains committed to ensuring our pilots have a strong contract that provides meaningful improvements and the best total compensation package among our competitors while also allowing Delta to continue to compete globally,” said Delta spokesman Michael Thomas.
Airline workers in their next round of negotiations are also seeking to improve their sick leave and working conditions, ensuring employees aren’t spread too thin.
Hiring ramping up
The talks are coming as airlines are racing to hire new employees in a tight labor market to keep up with strong travel demand. The federally mandated pilot retirement age of 65 has prompted airlines to beef up their recruitment programs over the past two years.
United, for example, in October said it launched a program that includes conditional job offers to trainee pilots to help fill its needs for 10,000 pilots over the next decade. The company is in talks with its pilots this year. American in 2018 unveiled a cadet program that will help place trainees with the company’s smaller regional airlines and make student loans available.
In July 2018, Delta said it would give nonpilot employees unpaid leave to train to help it add 8,000 pilots by 2028.