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- Dec 21, 2002
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Future of AA may hinge on talks
By TREBOR BANSTETTER
STAR-TELEGRAM STAFF WRITER
STAR-TELEGRAM
More photos
When American Airlines pilots and management sit down to begin contract talks this week, one simple issue is likely to dominate: The amount of time pilots spend flying airplanes.
American executives desperately want to boost pilots' productivity and lower labor costs, which by some measures are the industry's worst. Union leaders want to protect pilots' quality of life and guard against layoffs, which would likely accompany substantial productivity gains. And they insist that increased wages and benefits accompany any increases in productivity.
The outcome of the talks -- which most expect will take at least two years -- could be crucial to American's long-term future.
"American is sticking out like a sore thumb right now when it comes to productivity," said Vaughn Cordle, an analyst with consulting firm Airline Forecasts. He is also a commercial pilot, although not for American.
The contract talks, which begin Wednesday, will be the first major labor negotiation since spring 2003, when American executives and labor leaders hammered out new contracts as the airline teetered on the brink of bankruptcy.
Those negotiations took about four months, and most analysts credit the employees' sacrifices with keeping American out of bankruptcy and giving it a competitive edge over rivals at the time.
The next round of talks could take two years or more because the current contract doesn't expire until 2008. This summer, American management triggered a provision to begin early negotiations. Airline contracts typically take several years to negotiate because of complex federal laws that govern the process.
The pilot talks will be a major test for American, which has struggled to reverse its fortunes since 2001.
The talks will indicate whether the airline has improved labor relations, which have historically been bitter and contentious. The talks will also indicate how hard negotiations with ground workers and flight attendants, which will likely begin next year, will be.
And the pilot talks will determine whether American will be able to catch up with competitors who have cut labor costs deeply in recent years, often through bankruptcy court and with measures like terminating pension plans and retiree medical benefits.
"There's no question that American has a lot at stake here," said Richard Gritta, a finance professor at the University of Portland who has extensively studied airline economics. "Other than fuel, labor is their biggest cost."
American executives say they hope to forge a new contract that will help the airline continue to recover financially. They say that's in pilots' and management's best interests.
"Our goal as a company is to move into a competitive business cycle that allows us to grow and reinvest in our airline," said Sue Gordon, a spokeswoman. "By adopting a high-productivity model, it helps us move closer to that goal."
Officials with the Allied Pilots Association, which represents pilots, declined to comment for this report, saying they were still preparing for the talks. But in recent messages to members, they said they are willing to discuss productivity only if it is accompanied by better wages and benefits.
Ralph Hunter, the union's president, rejected the idea that American must emulate competitors that cut costs through bankruptcy.
"American Airlines employees paid a steep price for keeping our company out of bankruptcy," he said. "If management wants the pilot contract of a bankruptcy carrier, then they will have to go through bankruptcy to get it."
Many line pilots aren't particularly interested in working more for the same amount of money, said Phil Plummer, a New York-based pilot who is a first officer on an Airbus A300.
Worst in the industry
In 2003, after employees approved $1.8 billion in annual wage and benefit cuts, American had the lowest labor costs of the major hub airlines.
That advantage is long gone. Today, after a spate of bankruptcies at rival airlines, American's labor costs are the highest among the major carriers. During the first quarter of this year, American's labor unit costs were 25 percent higher than United Airlines', 27 percent greater than Continental Airlines' and 52 percent more than JetBlue Airways'.
Although pilots' wages and benefits will without question be major topics, American's negotiators are likely to focus early on productivity as a means of reducing expenses and narrowing the airline's cost disadvantage.
For pilots, agreeing to productivity gains could, in theory, offset other contract terms such as keeping pensions intact, retaining retiree medical benefits or increasing wages. But it would also mean more hours on the job, and it could slow some pilots' career advancement at the airline.
It could also lead to layoffs if fewer pilots are needed for the same amount of flying. Furloughs could be avoided if American expands, but it has kept a tight rein on growth in the past year.
American's disadvantage compared with other airlines is palpable. According to a union analysis, American pilots flew about 51 hours per month, on average, last year.
That's the worst record among the major carriers. Southwest pilots flew the most, 64 hours per month.
Traditionally, airlines pay pilots only for the time they spend flying. Pilots spend many hours on the ground on flight preparation and in airports between flights. They also spend many nights away from home between flights.
Still, American pays pilots for many hours that aren't spent in the air. Under the current contract, the airline must pay line pilots for at least 64 flight hours each month. Reserve pilots must be paid for at least 73 hours monthly.
Only 63 percent of American pilots' wages are for time spent flying, according to the union analysis. At Southwest, the industry leader, it's 76 percent.
Managers hope to reduce the nonflying hours as much as possible.
Some other airlines have more generous minimum payments than American. Continental and US Airways, for example, guarantee 72 hours paid each month.
Costly complications
American's disadvantage stems from a variety of sources. Its enormous route system, which is organized around giant hub airports like Dallas/Fort Worth Airport and O'Hare Airport in Chicago, often makes it difficult to efficiently schedule pilots so they can fly more than the minimum number of hours.
Bad weather, for example, could prevent a pilot from getting from one flight to the next. In that case, a reserve pilot would be brought in.
The airline also has a long-standing, complex system of assigning flights to pilots. Each month, American divides its schedule into about 6,000 "trips," or sequences of flight legs, that begin and end at the pilot's base airport. Pilots bid on several trips totaling a maximum of 78 hours for the month, and the most senior are awarded their trips of choice.
The bidding system sometimes awards pilots trips that they cannot take because doing so would violate contract or FAA flight regulations.
For example, if a pilot has a flight at the end of the month and is awarded a flight that begins on the first of the next month, there might not be enough federally required rest time in between. Or the system might give a pilot trips that overlap or otherwise conflict.
That means the line pilot would be dropped from the flights, which a reserve pilot would take over.
The scheduling quirks mean American must keep many reserve pilots ready to fill in when needed. About one-quarter of American's 10,000 active pilots fly on a reserve basis. They fly even fewer hours because they can't be scheduled in advance.
In 2005, reserve pilots flew about 36 hours per month, according to the union. Those pilots are paid for at least 73 hours each month. Line pilots, paid for at least 64 hours, flew 56 hours on average each month.
A variety of changes could help smooth out the system. For example, rather than bidding on pre-existing trips, pilots would specify the types of trips they want and which days they would like off, and a schedule would be built around those preferences, reducing the number of conflicts.
Or pilots could bid for several months' worth of flights at once, which would minimize overlaps between trips near the end and beginning of each month.
The airline could also increase the maximum number of hours flown each month from the current 78-hour limit.
All that would reduce the need for costly reserve pilots and boost line pilots' flying time.
Any changes would have to be negotiated in the contract, and some pilots are likely to object. The current system is the most flexible, and some pilots say it helps them maximize the amount of time at home with their families.
And productivity improvements mean the airline would need fewer pilots. That could mean layoffs unless the airline expands. It would also slow career advancement for many junior pilots because fewer new captains would be needed.
The airline could have the most trouble trying to convince the union that changes are needed at all, given recent improvements in American's financial footing.
The airline is enjoying its most robust year since 2001, with a profit of $127 million during the first half of the year despite high fuel prices.
"By all appearances, American Airlines is doing well," Hunter said. "The time has come to recognize and reward those who made this success possible."
Effect of bonuses
Some union leaders acknowledge the present system's problems. Last year, Hunter and the union's board of directors agreed to voluntary talks with American to find ways to let pilots fly more.
"We need to shed our old views of inefficiency as a form of job security," Hunter said at the time.
Working with managers, union officials conducted an extensive study of their productivity compared with other airlines' last year. In December, union leaders conducted seminars with members nationwide, stressing the need to tighten work rules to help American compete.
But that effort fell apart early this year after employees learned of bonuses for about 1,000 American managers and executives. Outrage over the payouts stifled any appetite for easing work rules to help the airline.
Those bonuses continue to cast a shadow over the contract talks. In his recent letter to union members outlining his goals for the new contract, Hunter said executives "changed the rules of engagement" by rewarding themselves after employees took big pay cuts.
"A true collaborative effort is simply not possible when management places themselves in a special class and believes they deserve special treatment," he said.
The union will demand improvements to compensation, benefits and job security "before we expend any more significant resources on pilot productivity issues," Hunter said.
Gritta, the University of Portland economist, said the bonuses are a major issue for pilots.
"Employees are suspicious because American has a long history of saying one thing to unions and then turning around and doing another," he said. "No one's forgotten that, and a lot of pilots are going to be resentful of what looks like a double standard."
American spokeswoman Gordon acknowledged that the union and executives disagree on the bonuses. "When we started our process of working together, we never expected that we would agree on everything," she said. "But we hope these kinds of issues won't distract us from our goals of creating a stronger, thriving airline."
New York-based pilot Plummer said the bonuses demonstrated that managers were enjoying the fruits of American's improved financial position.
"The company has been profitable, the price of oil is going down, management got their reward," he said. "All we want is the same consideration."
By TREBOR BANSTETTER
STAR-TELEGRAM STAFF WRITER
STAR-TELEGRAM
More photos
When American Airlines pilots and management sit down to begin contract talks this week, one simple issue is likely to dominate: The amount of time pilots spend flying airplanes.
American executives desperately want to boost pilots' productivity and lower labor costs, which by some measures are the industry's worst. Union leaders want to protect pilots' quality of life and guard against layoffs, which would likely accompany substantial productivity gains. And they insist that increased wages and benefits accompany any increases in productivity.
The outcome of the talks -- which most expect will take at least two years -- could be crucial to American's long-term future.
"American is sticking out like a sore thumb right now when it comes to productivity," said Vaughn Cordle, an analyst with consulting firm Airline Forecasts. He is also a commercial pilot, although not for American.
The contract talks, which begin Wednesday, will be the first major labor negotiation since spring 2003, when American executives and labor leaders hammered out new contracts as the airline teetered on the brink of bankruptcy.
Those negotiations took about four months, and most analysts credit the employees' sacrifices with keeping American out of bankruptcy and giving it a competitive edge over rivals at the time.
The next round of talks could take two years or more because the current contract doesn't expire until 2008. This summer, American management triggered a provision to begin early negotiations. Airline contracts typically take several years to negotiate because of complex federal laws that govern the process.
The pilot talks will be a major test for American, which has struggled to reverse its fortunes since 2001.
The talks will indicate whether the airline has improved labor relations, which have historically been bitter and contentious. The talks will also indicate how hard negotiations with ground workers and flight attendants, which will likely begin next year, will be.
And the pilot talks will determine whether American will be able to catch up with competitors who have cut labor costs deeply in recent years, often through bankruptcy court and with measures like terminating pension plans and retiree medical benefits.
"There's no question that American has a lot at stake here," said Richard Gritta, a finance professor at the University of Portland who has extensively studied airline economics. "Other than fuel, labor is their biggest cost."
American executives say they hope to forge a new contract that will help the airline continue to recover financially. They say that's in pilots' and management's best interests.
"Our goal as a company is to move into a competitive business cycle that allows us to grow and reinvest in our airline," said Sue Gordon, a spokeswoman. "By adopting a high-productivity model, it helps us move closer to that goal."
Officials with the Allied Pilots Association, which represents pilots, declined to comment for this report, saying they were still preparing for the talks. But in recent messages to members, they said they are willing to discuss productivity only if it is accompanied by better wages and benefits.
Ralph Hunter, the union's president, rejected the idea that American must emulate competitors that cut costs through bankruptcy.
"American Airlines employees paid a steep price for keeping our company out of bankruptcy," he said. "If management wants the pilot contract of a bankruptcy carrier, then they will have to go through bankruptcy to get it."
Many line pilots aren't particularly interested in working more for the same amount of money, said Phil Plummer, a New York-based pilot who is a first officer on an Airbus A300.
Worst in the industry
In 2003, after employees approved $1.8 billion in annual wage and benefit cuts, American had the lowest labor costs of the major hub airlines.
That advantage is long gone. Today, after a spate of bankruptcies at rival airlines, American's labor costs are the highest among the major carriers. During the first quarter of this year, American's labor unit costs were 25 percent higher than United Airlines', 27 percent greater than Continental Airlines' and 52 percent more than JetBlue Airways'.
Although pilots' wages and benefits will without question be major topics, American's negotiators are likely to focus early on productivity as a means of reducing expenses and narrowing the airline's cost disadvantage.
For pilots, agreeing to productivity gains could, in theory, offset other contract terms such as keeping pensions intact, retaining retiree medical benefits or increasing wages. But it would also mean more hours on the job, and it could slow some pilots' career advancement at the airline.
It could also lead to layoffs if fewer pilots are needed for the same amount of flying. Furloughs could be avoided if American expands, but it has kept a tight rein on growth in the past year.
American's disadvantage compared with other airlines is palpable. According to a union analysis, American pilots flew about 51 hours per month, on average, last year.
That's the worst record among the major carriers. Southwest pilots flew the most, 64 hours per month.
Traditionally, airlines pay pilots only for the time they spend flying. Pilots spend many hours on the ground on flight preparation and in airports between flights. They also spend many nights away from home between flights.
Still, American pays pilots for many hours that aren't spent in the air. Under the current contract, the airline must pay line pilots for at least 64 flight hours each month. Reserve pilots must be paid for at least 73 hours monthly.
Only 63 percent of American pilots' wages are for time spent flying, according to the union analysis. At Southwest, the industry leader, it's 76 percent.
Managers hope to reduce the nonflying hours as much as possible.
Some other airlines have more generous minimum payments than American. Continental and US Airways, for example, guarantee 72 hours paid each month.
Costly complications
American's disadvantage stems from a variety of sources. Its enormous route system, which is organized around giant hub airports like Dallas/Fort Worth Airport and O'Hare Airport in Chicago, often makes it difficult to efficiently schedule pilots so they can fly more than the minimum number of hours.
Bad weather, for example, could prevent a pilot from getting from one flight to the next. In that case, a reserve pilot would be brought in.
The airline also has a long-standing, complex system of assigning flights to pilots. Each month, American divides its schedule into about 6,000 "trips," or sequences of flight legs, that begin and end at the pilot's base airport. Pilots bid on several trips totaling a maximum of 78 hours for the month, and the most senior are awarded their trips of choice.
The bidding system sometimes awards pilots trips that they cannot take because doing so would violate contract or FAA flight regulations.
For example, if a pilot has a flight at the end of the month and is awarded a flight that begins on the first of the next month, there might not be enough federally required rest time in between. Or the system might give a pilot trips that overlap or otherwise conflict.
That means the line pilot would be dropped from the flights, which a reserve pilot would take over.
The scheduling quirks mean American must keep many reserve pilots ready to fill in when needed. About one-quarter of American's 10,000 active pilots fly on a reserve basis. They fly even fewer hours because they can't be scheduled in advance.
In 2005, reserve pilots flew about 36 hours per month, according to the union. Those pilots are paid for at least 73 hours each month. Line pilots, paid for at least 64 hours, flew 56 hours on average each month.
A variety of changes could help smooth out the system. For example, rather than bidding on pre-existing trips, pilots would specify the types of trips they want and which days they would like off, and a schedule would be built around those preferences, reducing the number of conflicts.
Or pilots could bid for several months' worth of flights at once, which would minimize overlaps between trips near the end and beginning of each month.
The airline could also increase the maximum number of hours flown each month from the current 78-hour limit.
All that would reduce the need for costly reserve pilots and boost line pilots' flying time.
Any changes would have to be negotiated in the contract, and some pilots are likely to object. The current system is the most flexible, and some pilots say it helps them maximize the amount of time at home with their families.
And productivity improvements mean the airline would need fewer pilots. That could mean layoffs unless the airline expands. It would also slow career advancement for many junior pilots because fewer new captains would be needed.
The airline could have the most trouble trying to convince the union that changes are needed at all, given recent improvements in American's financial footing.
The airline is enjoying its most robust year since 2001, with a profit of $127 million during the first half of the year despite high fuel prices.
"By all appearances, American Airlines is doing well," Hunter said. "The time has come to recognize and reward those who made this success possible."
Effect of bonuses
Some union leaders acknowledge the present system's problems. Last year, Hunter and the union's board of directors agreed to voluntary talks with American to find ways to let pilots fly more.
"We need to shed our old views of inefficiency as a form of job security," Hunter said at the time.
Working with managers, union officials conducted an extensive study of their productivity compared with other airlines' last year. In December, union leaders conducted seminars with members nationwide, stressing the need to tighten work rules to help American compete.
But that effort fell apart early this year after employees learned of bonuses for about 1,000 American managers and executives. Outrage over the payouts stifled any appetite for easing work rules to help the airline.
Those bonuses continue to cast a shadow over the contract talks. In his recent letter to union members outlining his goals for the new contract, Hunter said executives "changed the rules of engagement" by rewarding themselves after employees took big pay cuts.
"A true collaborative effort is simply not possible when management places themselves in a special class and believes they deserve special treatment," he said.
The union will demand improvements to compensation, benefits and job security "before we expend any more significant resources on pilot productivity issues," Hunter said.
Gritta, the University of Portland economist, said the bonuses are a major issue for pilots.
"Employees are suspicious because American has a long history of saying one thing to unions and then turning around and doing another," he said. "No one's forgotten that, and a lot of pilots are going to be resentful of what looks like a double standard."
American spokeswoman Gordon acknowledged that the union and executives disagree on the bonuses. "When we started our process of working together, we never expected that we would agree on everything," she said. "But we hope these kinds of issues won't distract us from our goals of creating a stronger, thriving airline."
New York-based pilot Plummer said the bonuses demonstrated that managers were enjoying the fruits of American's improved financial position.
"The company has been profitable, the price of oil is going down, management got their reward," he said. "All we want is the same consideration."
