Airlines worry as unions win big raises
USA Today
As airlines' financial losses worsen, there's growing alarm about the big raises that their labor unions are winning. The worry is other airlines will be forced to match the contracts' sizable raises, leading to deeper losses or layoffs if the economy doesn't rebound soon.
"I don't understand how the airline industry can continue to absorb these kinds of pay increases," says Jerry Glass, a Washington-based labor consultant to airlines. "We're just beginning to see layoffs. If airlines have to reduce costs, they'll have to get heads off the payroll or get pay cuts."
Last winter, many feared that contract disputes at four big airlines — American, Delta, Northwest and United — would erupt into strikes disrupting summer travel. But with the tentative agreement between American and its flight attendants union last week, three of those disputes have been settled peacefully:
• American. The agreement's details haven't been released and it's subject to a ratification vote, but it has been touted as giving American's 23,000 flight attendants the industry's top pay.
• Delta. Pilots won raises of at least 24 percent over five years. Delta's flight crew costs will go up $2.4 billion over the same period.
• Northwest. Mechanics received immediate raises of 24 percent and more than doubled their pension benefits. Northwest expects its maintenance costs to jump $232 million this year.
Negotiations leading to the contracts started years ago, when those airlines were posting record profits. But the raises come as airlines are reeling from a sharp falloff in business travel. Most major airlines posted large losses in the first quarter, and most second-quarter reports promise to be grim.
Airlines have launched fare sales to stimulate business. At least three airlines — America West, Atlas and Midwest Express — have announced some layoffs.
The combination of generous labor contracts and deep losses "is troubling with respect to the future of the industry," says Dave Swierenga, economist for the Air Transport Association. "When demand is already soft and they're lowering prices, there's no way they're going to cover these added costs."
Industrywide, labor costs have risen dramatically the past two years. Salomon Smith Barney analyst Brian Harris says airline labor costs rose 2.5 percent in 1998, 3.1 percent in 1999 and 8.3 percent last year thanks to a United Airlines pilots union contract last fall that gave them 45 percent total raises over 4 1/2 years. This year, he says they'll rise 6.3 percent.
Glass says he's never seen generous contracts being signed amid losses.
"It's just starting to sink in that the turnaround everyone thought would happen isn't coming," he says. "I guess the attitude (among unions) is, 'Let's get it while we can,' but they kind of know they might have to give it back."
